What Is a Loan Against Mutual Funds?
A loan against mutual funds allows you to borrow money by submitting your mutual fund units as Security. The lender retains control of the pledged units until the loan is repaid, but your mutual fund investment remains intact, continuing to earn returns during the loan tenure.
Banks and Non-Banking Financial Companies (NBFCs) generally offer this facility and the loan amount depends on your requirements and is typically a percentage of the value of the mutual fund units pledged.
Benefits of Taking a Loan Against Mutual Funds
1. Retain Investment Benefits: One of the biggest advantages of a loan against mutual funds online is that you don’t have to sell your investments. Your mutual funds continue to grow in value and earn returns, ensuring you don’t miss out on potential gains while meeting your financial needs.
2. Lower Interest Rates: Unlike personal or credit card loans, loans against mutual funds generally come with lower interest rates. This is because these loans are secured with your mutual fund units, reducing the lender’s risk.
3. Flexible Loan Tenure: Most lenders offer flexible repayment tenures, allowing you to choose a duration that aligns with your financial situation. This ensures manageable repayment schedules and prevents unnecessary strain on your budget.
4. Quick and Hassle-Free Process: Applying for a loan against mutual funds is relatively simple. Once you pledge your mutual fund units, lenders can disburse the loan quickly, often within 24-48 hours. Many lenders also provide online facilities, making the process even more convenient.
5. No Need for a Credit Score Check: Since these loans are secured, lenders are less reliant on your credit score. This makes loans against mutual funds a viable option even for individuals with limited credit history or a low credit score.
How Does It Differ From Other Types of Loans?
1. Collateral-Based vs. Unsecured Loans: Unlike personal loans, which are unsecured and come with higher interest rates, loans against mutual funds require collateral. This makes them more cost-effective and easier to obtain for borrowers.
2. Impact on Investments: When you sell your mutual funds to meet financial needs, you lose out on compounding returns and could incur capital gains tax. With a loan against mutual funds, your investments remain intact, helping you stay on track with your long-term goals.
3. Lower Costs Than Credit Card Loans: Credit card loans often come with exorbitant interest rates, making them an expensive option for emergencies. Loans against mutual funds are much more affordable in comparison, offering a cost-effective solution for short-term financial needs.
4. Specific Usage vs. General Flexibility: Loans like home loans or auto loans are purpose-specific, whereas a loan against mutual funds offers greater flexibility in terms of usage. You can use the funds for medical emergencies, education, business needs, or any other personal expense.
5. Risk of Market Fluctuations: While mutual funds can appreciate over time, their value is subject to market risks. If the NAV of your pledged units drops significantly, lenders may ask for additional collateral or partial repayment, a factor that doesn’t affect other types of loans.
Who Should Opt for a Loan Against Mutual Funds?
This loan is ideal for individuals who have invested in mutual funds and need immediate funds but don’t want to disrupt their investment portfolio. It’s particularly beneficial for those looking for a low-cost borrowing option with minimal documentation and flexible repayment terms.
Conclusion
An instant loan against mutual funds in Hyderabad is a smart financial tool for leveraging your investments while retaining their growth potential. It provides a cost-effective, flexible, and efficient way to address short-term financial needs without compromising your long-term financial plans. When compared to personal loans, credit card loans, or purpose-specific loans, it stands out for its affordability and flexibility. However, as with any financial product, it’s crucial to assess your repayment capacity and the risks involved before availing of this loan.
Also Read: Is it a Good Option to Take a Loan Against Mutual Funds to Make Bill Payments?