home loans investment mutual funds

Loans against Mutual Funds

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Occasionally in life, you will come across a condition where you need cash urgently. Most people in this condition will look to dissolve some of their assets. If you have invested in mutual funds you may not need to do so, as so many banks and Non-Banking Financial Corporations (NBFCs) supply loans against mutual funds. The procedure of applying for a loan against your mutual funds is simple and fast. Loans are available for all types of funds, hybrid, equity, debt, or liquid. Most banks and NBFCs charge an interest rate between 11 – 12% and will provide you with a loan of up to 60 – 70% of the market worth of your investments.

Almost all banks and NBFCs will be suppling you a loan against your mutual funds. A few banks offer this provision online. If you hold your mutual funds in a Demat account the spending of the loan is faster as no physical documents are needed. If you hold them in a physical form you will require to give a loan agreement and submit physical proof of investments.

When you register for a loan against your mutual funds, the bank or NBFC contacts Karvy or CAMS to mark a lien against the elements of the mutual fund you would like to take a loan on. A lien mentions to the right of a lender to hold or sell mutual funds in the situation you default on repayment of the loan. Once the lien is market against the components the bank or NBFC will disburse the loan to your account. Be aware that you will not be skilful to sell any units marked as a lien.

Once the loan amount is repaid the bank or NBFC will contact Karvy or CAMS to dismiss the lien against the component of the mutual fund. The lien dismissal letter will contain the folio number, scheme and units held in the lien. The lien can be removed completely or partially depending on whether the loan was completely repaid or partially.

So, the upcoming time you’re looking to take a loan, this might be a good alternative to examine.

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