Loan Against Mutual Funds

Updated on: 11 July 2023

Published on: 29 May 2023

Loan Against Mutual Funds

Secured loans are those that often have lower interest rates. This is because you are required to pledge your assets such as property or gold. However, if you do not have either, you can always avail loans against mutual funds. Choosing this lending option has twin benefits.

One, you get to enjoy the loan for your desired purpose. Second, your investments continue to accrue interest, undisturbed. Considering these perks, you may be wondering, ‘How can I get a loan against a mutual fund?’. Read on to find out.

Online application and overdraft facility

Taking a loan against a mutual fund investment is easier than ever before. Thanks to the online application process offered by most lenders, you can get this loan from the comfort of your home.

In most cases, you can simply apply for a secured loan and pledge your investments as security. In some cases, you may even be able to avail the overdraft facility. The overdraft scheme is a pre-approved credit arrangement.

Here, you can withdraw more than what you have in your bank account by pledging your assets as collateral. The lender will then extend a line of credit, charging interest on the sanction you utilise.

Loan against mutual funds: Interest rate

Lenders offer loans at lower interest rates if they are backed by collateral. As such, the loan against mutual funds interest rate is generally lower, making it better than unsecured loans. 

Moreover, with loan against mutual funds, you get to enjoy a continuous flow of yield on your investments. Your assets are safe and your returns are unaffected throughout loan repayment. 

Loan against mutual funds: Eligibility criteria

Most lenders have different loans against mutual funds eligibility criteria. However, there are some common requirements to get this loan. For instance, to enjoy this loan, you must qualify as any one of the following:

  • Individual Resident Investor
  • Non-Resident Indians (NRIs)
  • Hindu Undivided Family (HUF) 
  • Firm, Trust, or Company

The lender decides on your loan amount, tenure and interest rate based on various factors, including:

  • Quantum of mutual funds’ holdings
  • Credit score
  • Repayment history 

Loan amount against mutual funds: Maximum limit

The amount of loan against mutual funds depends on the following factors:

  • The type of mutual funds you have invested in
  • The lender from which you avail the loan against a mutual fund

Banks provide a loan sanction from 50%-60% of your equity holdings. On the other hand, you can get up to 80%-85% of the net asset value (NAV) on your debt funds.  

On the other hand, lenders also set an upper limit on loans against mutual funds. For instance, some lenders have set a limit of ₹10 crores that you can get as a loan against mutual funds. However, this limit can vary depending on the lender’s policy. 

In case a secured loan isn’t accessible to you, you can always avail of the Fibe Instant Personal Loan. Get funds between ₹5,000 to ₹5 lacs and borrow affordably. Best of all, you can access these funds online hassle-free. 

Simply download the Fibe instant loan app or visit the official website to get started. 

FAQs about Loans Against Mutual Funds

When will I receive the funds after applying for a loan against mutual funds?

While it depends on the lender, some of them disburse the funds within 24 hours of your loan request getting approved.

Is loan against mutual funds a good idea?

Yes. The cost of borrowing a loan against mutual funds is lower compared to personal loans. Moreover, during the loan term, your earnings from the mutual fund investments remain unaffected.

What is the interest rate for loans against mutual funds?

The loan against mutual funds interest rate varies depending on the lender. However, it generally ranges between 8% to 10% p.a.

How much loan can I get against a mutual fund?

You can get a loan amount of about 50% to 60% of the market price of your equities. For debt securities, banks generally provide a loan amounting to 80% to 85% of its value.

What are the advantages of taking a loan against mutual funds? 

The following are some advantages of taking a loan against mutual funds:

  • Your mutual funds will remain invested in the market unless you fail to repay the loan. Moreover, you will continue to earn returns as you repay your loan.  
  • These loans also provide lower interest rates as compared to unsecured loans.

A loan against mutual funds is the best option if you want to enjoy instant liquidity.

Category : Finance

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