Key Takeaways:
- Mutual fund loans are approved quickly with the amount getting disbursed into your account within hours.
- Get loans against mutual funds to meet temporary financial needs without terminating your long-term investments.
- You must have identity and income proof, and a mutual fund ownership certificate to secure a loan against your mutual funds.
- Loans against mutual funds offer flexible repayment solutions.
Whenever you are in a cash-strapped situation, your initial thought is to withdraw money from your investments or liquidate your stocks and mutual funds.
But is that your best course of action considering you’d have to pay penalty charges for withdrawing money from locked-in investments?
And as for redeeming your stocks, it’s going to disrupt your long-term, wealth accumulation aspirations.
What if we told you there’s a better alternative?
A smart financial plan that will help you meet temporary cash shortages without disturbing other financial goals.
That’s where mutual fund loans come in.
These types of loans are the most effective ways of handling short-term financial crunches without ending long-term investments.
What Are Mutual Fund Loans?
When you take a loan against mutual funds, you borrow money from a financial institution using your mutual fund units as collateral.
The process is the same as taking a loan against property or gold.
Traditionally, you offer your property as security, in this case, it’s your mutual fund units.
There are three important benefits to taking a loan against mutual funds.
The interest rates are extremely affordable.
You continue earning profits from your investments.
You meet short-term financial needs without terminating your long-term plans.
Between April and May, 81 lac new mutual fund investor accounts were opened, confirming the reigning popularity of the mutual fund industry as the leading lending option in India.
- Also Read: Legal Rights of a Loan Borrower in India
5 Things You Should Know About Loans Against Mutual Funds
There are several reasons for taking a loan.
15% of Indians opt for a loan to fund their medical emergencies while 15% hope to secure a loan to renovate or construct their home.
While there are several benefits to taking a loan against mutual funds, let’s narrow it down to these 5:
1. Loan Against Mutual Funds Have Lower Interest Rates Compared To Personal And Credit Loans
One of the key highlights of taking a loan against mutual funds is its affordable interest rates.
There’s a huge margin that you can save if you compare its interest rates with credit cards or personal loans.
Lower interest rates are applied to mutual fund loans as they are backed by collateral – your mutual fund units.
50Fin offers loans against mutual funds at an interest rate of 10.5% per annum, making it a feasible option for anybody looking for quick access to funds.
On the flip side, unsecured loans have higher interest rates due to the lack of financial backing.
The lack of security and increased risk compel the financial institution to charge higher interest rates.
2. You Continue Earning Profit From The Pledged Mutual Fund Units
The good thing about mutual fund loans is that you still have ownership over your mutual fund units.
What that essentially means is that while you have used them as collateral to access quick funds, you continue earning profit from your investments – because it’s still yours.
The amount of profit you earn depends on the market value of your asset.
This way, you don’t miss out on your profit returns and you have access to the much-needed cash, and that too, on such short notice.
3. Loans Against Mutual Funds Are Less Risky
The truth is that loans against mutual funds are still less risky.
At least, when you compare its advantages and disadvantages with other types of loans, like variable personal loans.
You are literally using your investment as security, making it a convenient option for the financiers as well.
Thus, maintain your long-term investments while continuing to reap short-term benefits, like profit returns and temporary loans.
4. There Are 5 Types Of Mutual Fund Loans
The loan amount depends on the type of mutual fund scheme you have.
There are 5 popular types of mutual funds.
- Equity funds are stocks with high-return potential
- Debt funds are bonds and low-risk options
- Hybrid funds are a combination of stocks and bonds
- Index funds replicate the performance of the market index
- Money market funds are short-term tools with high security
5. You Don’t Have To Liquidate Your Investments
When you take a loan against your mutual fund investments, you use your mutual fund units as collateral – a security allowing you to access money without liquidating your investments.
The terms and conditions for the loan repayment are also extremely flexible. You’ve got low interest rates and monthly installments.
Eligibility Criteria for Mutual Fund Loans
Make sure you are eligible for a loan against your mutual fund investments.
Here’s your checklist:
- The applicant must be between the ages of 18 and 65.
- The applicant must be a resident of India
- The applicant should have equity or debt mutual funds. However, other types of mutual funds are also acceptable. It depends on the financier.
- The applicant should be the primary holder of the mutual funds. In the case of a joint holder, both parties should sign the loan agreement.
Application Process for Loans Against Mutual Funds
The process of securing a loan against your mutual funds is quite easy.
Here’s your quick, go-to guide.
- You will fill out the online application form. Get a signature from your lender and apply with the rest of the documents.
- You will submit a pledge request.
- The lender will verify your ownership and approve the loan.
- The amount is disbursed into your bank account within the same day.
2 Reasons Why You Should Take Mutual Fund Loans
While there are several benefits of getting a mutual fund loan, here are the top two reasons why you should seek this digital lending option.
- It will help you meet short-term financial needs without liquidating long-term investments.
- The entire process is digital and takes literally 7 minutes to complete.
And with 50Fin, you can even get the amount disbursed into your bank account in 4 business hours.
The Bottom Line
Loans against mutual funds are the way forward.
Mutual fund loans are your silver lining in a world of lending options that require hours of physical paperwork and a lack of security.
Not only are they super convenient, but they offer security and high flexibility.
And with 50Fin, the process is quick with no hidden charges or upfront fees.
You can easily sign up on the platform and get a loan against mutual funds!
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