Mutual Fund Loan: Many lenders are offering loans against mutual funds. On this loan, they are offering a lower interest rate than personal loan and gold loan. In case of equity mutual funds, the loan can be availed up to a maximum of 50% of the scheme value.
New Delhi: Mutual Fund schemes form a major part of the investment portfolio of many people. Therefore, many lenders are aggressively offering loans against it. According to a report in Economic Times, on the one hand, lenders have simplified the process of accessing such loans. At the same time, its interest rate has also been kept low as compared to personal or gold loan. This loan can be taken from public and private banks but non-banking finance companies (NBFCs) have been more aggressive on this front. The biggest attraction of this loan is that you do not have to stop your profitable schemes to meet minor needs.
Loan up to a maximum of 50% of the scheme value
In case of equity mutual funds, the loan can be availed up to a maximum of 50% of the scheme value. NBFCs charge 9-10% interest for this loan depending on your credit score. In comparison, loan against gold rates range from 9-24%, while people pay 10-18% for personal loans. Most loans against mutual funds have a tenor of 12 months and the minimum loan amount is usually ₹10,000 with an upper limit of ₹1 crore.
Krishan Kanhaiya, CEO, Mirae Asset Financial Services, said, “We have seen many times investors sell their equity mutual fund units to meet short term emergencies. Due to this, they often do not earn reasonable returns from equity and miss out on their long term goals.
Easy process
Lenders have made it easy for people to borrow against mutual funds. They have made the whole process digital and easy. NBFC executives said that generally, interest is charged on the amount utilized for the number of days the amount is utilized and there is no EMI. The loan amount can be repaid anytime during the loan tenure of one year and there is an option to renew the loan after one year. Financial planners are of the opinion that needs like medical emergency can be met with this type of loan.
There is also loss
A major disadvantage of such loans is that the borrower will have to top-up in case of a sharp fall in the stock market. That is, the lender asks the borrower to bring as much money as the equity mutual fund has depreciated in value.
Are you stuck somewhere
Vidya Bala, Co-Founder, PrimeInvestor, says, “When investors are advised to take such loans, they should see if there is any selfishness behind such advice.” For example, asset management companies or distributors would not want their assets to fall, as their income would come down.
