✅Emergencies can happen anytime and one can fall short of money in the short term. A loan against mutual funds can help you in such situations. You can avail the money without redeeming your mutual funds. In this video, we shall look at Its many details including its eligibility, loan limits, how to apply, how to access, interest rates, and a lot more
00:00 – INTRODUCTION
01:11 – BASICS OF LOANS AGAINST MUTUAL FUNDS
02:28 – WHO IS ELIGIBLE FOR A LOAN?
05:18 – HOW IS THE LOAN LIMIT CALCULATED?
07:24 – HOW TO ACCESS THE LOAN?
10:15 – HOW TO APPLY FOR A LOAN AGAINST A MUTUAL FUND?
11:34 – WHAT IS THE INTEREST CHARGED?
13:51 – SUMMARY
The workings of a loan against a mutual fund are pretty standard and can be summed up in three steps:
Step 1 – Estimating your eligible loan limit, which is done based on your mutual fund corpus
Step 2 – Pledge your units in favor of the loan provider, who then sets up a lien or a legal claim over those units in the system
Step 3 – Loan is granted
In case you are unable to pay the loan, the loan provider retains the right to sell these units to recover their money
👉 WHO IS ELIGIBLE?
Anyone over the age of 18 years with money invested in mutual funds can apply for a loan .. but the final disbursement is always subject to certain conditions and criteria as defined by the loan provider
– Equity – Only for Individuals to apply
– Debt funds – Individuals, Partnerships, Hindu Undivided Family, sole proprietors, and even companies can apply for these loans.
Financial institutions offer the loan against mutual funds facility
Popular banks like the State Bank of India, HDFC Bank, ICICI, Axis Bank all offer this product .. as do the bigger NBFCs like Bajaj Finserv, Tata Capital, and Fullerton India
👉 HOW IS THE LOAN LIMIT CALCULATED?
The amount of loan that can be offered largely depends on two factors –
1. The type of mutual fund scheme
2. The internal policies of the loan provider
With regards to the type of scheme, all institutions apply different limits on debt and equity funds.
– For Debt Funds – most banks and NBFCs offer a loan limit of up to 80% of the net asset value
– For Equity funds – The loan limit is generally around the 50% mark
👉 HOW TO ACCESS THE LOAN?
The bank would open up a current account for you and allot an overdraft limit to that account. which means if you need the money, you can withdraw it or transfer it from this current account.
👉 HOW TO APPLY FOR A LOAN AGAINST A MUTUAL FUND?
1. Offline method which requires applicants to
– Approach a bank or an agent
– Submit KYC documents like address proof, photograph, etc.
– Submit a mutual fund holding statement
– Sign a pledge form
– Submit an income proof such as Form 16, ITR, etc
2. The faster and easier way of applying and receiving a loan is of course doing it online. Several financial institutions have already integrated their systems with registrars like CAMS .. which means marking a lien on specific schemes is now a matter of seconds
👉 WHAT IS THE INTEREST CHARGED?
Loan providers charge an interest rate on your loan amount or the utilized part of your OD account. This interest rate is almost always lower than the personal loan interest rate. Banks charge interest rates after considering several variables. The rate varies from bank to bank, but one can typically expect an annual interest rate of 10 to 12%.
In addition to interest rates, there are some additional charges.
1. Processing fee
2. Annual maintenance fee
3. Renewal charge
Here are the 10 points one needs to consider when obtaining a loan against mutual funds
1.Which lending institution to approach
2. Do you have any special eligibility requirement like a HUF, partnership, or company
3. What are the minimum and maximum loan amounts offered
4. Which is the approved list of mutual fund schemes
5. The percentage of NAV offered for equity and debt schemes
6. Whether the lender offers an overdraft or if they offer a regular loan
7. Offline versus online application
8. The speed of disbursing of loan .. the faster, the better
9. The Interest rate charged on the loan
10. the service charges
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