How to Get Digital Loan against Mutual Funds

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Inscription : dim. 30 janv. 2022 08:28

How to Get Digital Loan against Mutual Funds

Messagepar Joshua » mer. 4 mai 2022 21:28

Mutual funds typically not only provide good long-term returns, but can also be your reliable companion in times of financial crisis. For, they can be used as collateral to avail loans from banks.

According to financial experts, lending against mutual funds, categorized as lending against securities, is an interesting, if somewhat overlooked, financing option. Such a loan taken out against equity or debt-oriented mutual fund schemes could not only provide quick liquidity to the cash-strapped, but is also a bit cheaper, i.e. 11-13% per year, than an unsecured loan such as a personal loan (in the range of 11% and 16% p.a.) in most cases.

“A loan against mutual funds functions as an overdraft facility after the borrower commits their mutual fund units to the lender who places a lien on them and the borrower pays interest only on the actual amount of the loan drawn. Once you've paid off the loan, the lender will lift the lien and gain rightful ownership of your mutual fund units,” says Adhil Shetty.

When it comes to loan amount thresholds, lenders could offer up to 50% NAV of committed equity-based funds and up to 80% NAV of committed debt funds and maturity plans fixed, subject to a minimum amount, and maximum loan amount limits.

While many banks and non-bank finance companies (NBFCs) offer loans against securities, a leading private sector bank launched a digital loan against mutual funds in 2018 that offered such loans without paperwork. Interested borrowers just need a savings bank account with that particular bank to start the process. That said, currently only eligible folios with a single tenure can be pledged for this particular line of loan.

Now, one of the advantages of taking out a loan against mutual funds is that doing so prevents an investor from liquidating their investments at a loss during a cash crunch. A digital loan could be quickly disbursed and the investor can continue with their investments and at the same time receive the dividends, if any.

However, not all mutual fund schemes are eligible for a loan. Therefore, “aspiring borrowers should check with their lender in advance as to whether or not their mutual funds can be pledged for a loan with them. You also have the option to simply redeem your mutual fund units while they are profitable, reducing the need to borrow. Finally, before you finalize your decision, make sure you've factored in any other fees associated with the loan, such as the processing fee.

About Us

CAMS’ paper-less solution streamlines loan approval and lien marking processes. It leverages the myCAMS portal to provide a seamless experience to your end customers who have invested in CAMS serviced Mutual Funds. The solution brings access to schemes of 17 Mutual Funds clients serviced by CAMS.

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