Loan Against Mutual Funds- A Quick Guide

There are times when you are in a sore need of funds, and you are left with no other option than taking a loan. But, the high rate of interest makes it even tougher to consider a loan option for support.
Thus, you must look for financial help that is available at a lower interest rate. A loan against mutual fund can stand as a reliable source of generating funds. Here you will know about the vital features and benefits of loan against mutual funds.

Loan against Mutual Funds

Loan against mutual fund is a viable alternative to cope with any financial crisis, big or small. A loan against mutual funds is a secured loan where your mutual funds are taken as collateral. The best advantage of taking a loan against mutual funds is that you will not have to redeem the units before maturity. Also, your investment in SIP remains unaffected.

How loan against Mutual Funds work?

At the initial stage, the lender offers an overdraft facility to the borrower. Many leading banks and non-banking finance companies (NBFCs) can provide the loan at an attractive interest rate. The loan against mutual fund interest rate is usually lower than other unsecured loans as they have collateral against them.
To apply for the loan, you will need to swear your mutual fund units as collateral for the debt. The bank or NBFC will give the credit as per the value of units kept as security and the loan tenor. The value and liquidity of the mutual fund units in the portfolio become the basis of determining the loan amount. On an average, the borrower will get around 50% of the portfolio value as the loan amount.

Features and benefits of loan against Mutual Funds at a glance!

The loan against mutual fund will be a saviour at the time when you are in dire need of financial help. The loan against mutual fund interest rate is lower as compared to the unsecured loans. Here are a few vital features as well as benefits that a loan against mutual fund can offer to the loan applicant.

1)  Quick approval for a higher loan amount
The chance of getting higher loan amount depends on the value of pledged collateral. Collateral of high-value mutual funds can make a secured credit deal for the banks and NBFCs. It will increase the chances of getting an offer of a high amount loan. Thus, if the value of mutual funds is higher in the market, there are chances to get a higher loan amount to fulfil your many financial aspirations.
2)    Personal guidance to the loan applicant
Many leading lenders facilitate the applicants by providing a dedicated advisor. The advisor or relationship manager assists the applicant 24/7 and solves all loan related queries.
3)    No foreclosure charges
The borrower has the liberty to settle the loan before the tenor if he/she has enough cash inflow. One can end the loan in part payment or can foreclose the account before the scheduled time without paying any extra charges.
4)    Smooth documentation process
For processing the loan, you need not submit a bunch of documents. The KYCs and few essential documents are enough to complete the loan documentation. Less number of documents not only makes the work more comfortable but also makes it hassle-free and smooth.

The Bottom Line

You just learned some fundamental aspects of the loan against mutual funds that can be an ideal alternative for getting financial help. Now, if you wish to take the loan against a mutual fund, then you can apply for it online.