Turning Investments into Cash: Your Complete Roadmap to Getting Loans Against Mutual Funds

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When it comes to managing finances, mutual funds have become a popular investment option for many investors. Mutual funds are a pool of funds collected from several investors, which are invested in various financial instruments such as stocks, bonds, or a combination of both. These funds are managed by professionals who are experts in investment. Mutual funds offer an excellent opportunity to earn high returns on investment with low risk. However, in case of an emergency or an urgent need for cash, investors can avail themselves of loans against their mutual funds. In this article, we will be discussing how to avail of loans against mutual funds, its advantages, and considerations to keep in mind.

What is a loan against Mutual Funds?

A loan against mutual funds is a type of loan where an investor can borrow money by pledging their mutual fund units as collateral. In most cases, the loan amount offered is up to 50% of the market value of the mutual fund units pledged. This type of loan is known as a secured loan as it is backed by an asset, which is in this case, the mutual fund units.

Advantages of availing a loan against Mutual Funds

Low interest rates – Cost-effective borrowing

One of the compelling advantages of opting for a loan against mutual funds is the low interest rates associated with such loans. These rates are typically lower when compared to other forms of borrowing like personal loans or credit card loans. The reason behind this affordability lies in the collateralization of the loan with the mutual fund units themselves. This collateralization provides a level of security to the lender, as the pledged assets can be liquidated if the borrower defaults. Consequently, lenders are often more inclined to offer lower interest rates to borrowers, making loans against mutual funds an attractive borrowing option.

Easy approval – Swift access to funds

Securing a loan against mutual funds is known for its streamlined and uncomplicated approval process. Unlike some other forms of borrowing that require extensive documentation and credit checks, the loan against mutual funds approval process is hassle-free. This ease of approval is especially advantageous for individuals in need of urgent funds. Borrowers can expect swift processing and approvals, enabling them to access the required funds promptly, and potentially addressing emergent financial needs.

Tax benefits – Interest deductibility

Availing a loan against mutual funds can offer tax benefits to borrowers. Specifically, the interest paid on the loan is often eligible for tax deductions. This means that borrowers can reduce their taxable income by the amount of interest paid on the loan. This tax advantage can effectively lower the cost of borrowing and enhance the financial appeal of choosing a loan against mutual funds. It is essential for borrowers to understand the specific tax regulations in their jurisdiction and consult a tax professional to fully realize these benefits.

No need to sell Mutual Fund units – Retain investment position

One of the standout advantages of opting for a loan against mutual funds is that borrowers do not need to liquidate or sell their mutual fund units. This key feature ensures that borrowers continue to benefit from any potential returns, dividends, or capital appreciation generated by their investment. By retaining their investment position, borrowers maintain their exposure to the market’s performance. This can be particularly appealing for individuals who wish to address their financial needs without sacrificing the potential growth and benefits of their mutual fund holdings.

Considerations to keep in mind

1. Loan Amount: The loan amount offered by the lender is usually up to 50% of the market value of the mutual fund units pledged. Investors need to keep in mind that the loan amount should be easy to repay, and they should not over-leverage themselves.

2. Interest Rates: Although loans against mutual funds come with lower interest rates when compared to personal loans, investors should opt for a lender that offers the lowest interest rate to save on interest payments.

3. Processing Fees: Lenders usually charge processing fees for availing a loan against mutual funds. Investors should get a clear understanding of the processing charges and choose a lender that offers low processing fees.

4. Loan Tenure: The loan tenure can range from 12 months to 36 months (about 3 years). Investors should opt for tenure that is easy to repay and fits their financial goals.

Steps to avail a loan against Mutual Funds

The process of availing a loan against mutual funds is simple and easy. Here are the steps to follow:

1. Contact the lender: Investors need to contact their preferred lender and enquire about the loan against mutual funds.

2. Submit the required documents: The lender will ask the investor to submit the required documents such as the mutual fund statement, KYC documents, and loan application form.

3. Pledge Mutual Fund Units: The investor needs to pledge the mutual fund units as collateral.

4. Loan Approval and Disbursal: Once the lender verifies the documents and mutual fund units, the loan is approved, and the money is disbursed to the investor’s account.

Bajaj Finserv App: The ultimate financial app

There are several apps available in the market that can help you get a loan against mutual funds, but nothing beats the Bajaj Finserv App that can help you get a loan against mutual funds easily. 

Bajaj Finserv App has made it easy to avail of loans against mutual funds on their app. Here are the steps to follow:

1. Download and Login to the Bajaj Finserv app – First things first, investors need to download the Bajaj Finserv app from the Google Play Store or the App Store and log in using the registered mobile number.

2. Visit the Loans section – Next, investors need to visit the Loans section on the app and select Loan Against Mutual Funds under the Secured Loans tab.

3. Select the mutual fund scheme – Investors need to select the mutual fund scheme that they want to pledge as collateral for the loan from their investment portfolio.

4. Confirm the details – After selecting the mutual fund scheme, investors need to confirm the details such as the market value of the units, the loan amount, and the loan tenure.

5. Upload the documents – Investors need to upload the required documents such as the PAN card, address proof, and bank statement.

6. Get Approval and Disbursal – Once the documents are uploaded, the lender will review the application and approve it. After approval, the money will be disbursed to the investor’s account within a short period.

Conclusion

In conclusion, loans against mutual funds are an excellent option for investors who need cash in case of an emergency or an urgent need. These loans come with lower interest rates and easy approval, making it a hassle-free process. However, investors need to keep in mind the considerations while availing of a loan against mutual funds. With the proper understanding and knowledge, investors can avail of a loan against mutual funds, which can help them with their financial needs while still enjoying the benefits of their mutual funds.

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