Loan on Mutual Funds: Everything You Should Know
The Indian financial ecosystem has diversified quite a lot over the last 5 years.
With financial instruments like Buy Now Pay Later (BNPL), the growth of mobile banking, and the ease of borrowing loans, it’s not a surprise that we’re moving towards more feasible and convenient options.
Out of the financial growth we’ve witnessed, loans on mutual funds are gaining quite a bit of traction as well.
But with every new concept comes the knowledge behind it.
Mutual fund loans are no different.
This is a comprehensive guide on everything you should know about loans against mutual funds.
How do loans on mutual funds work?
Everybody knows about the loan concepts of borrowing against gold, land, and houses.
And quite similarly, loans against mutual funds (LAMF) work by keeping your mutual fund portfolio as collateral.
By doing so, you borrow funds from the lending institution that you’re signing up with.
However, certain nuances are important to understand for loans on mutual funds:
- Similar to every secured loan, obtaining loans on mutual funds isn’t difficult when you’ve sufficient collateral.
- Most lending institutions have a minimum portfolio value that you need to have. For 50Fin, the minimum portfolio value of your mutual funds is Rs 50,000.
- There’s an interest rate which varies from platform to platform, lending partner to partner.
- Since you’ve borrowed loans on mutual funds, that also means that you can’t redeem your mutual fund investments until your loan is repaid.
- Even though you borrow a loan against your mutual fund portfolio, you will still continue to earn returns or dividends from your investment.
We’ve talked about all these points in detail in our guide on loans on equity mutual funds.
Loans against mutual funds: Borrowing over redeeming
Mutual Funds are the core of the Indian financial markets – maintaining an upward growth trajectory with net inflows increasing by 93% reaching a high of Rs 25,616 crore in November 2023.
Let’s say you need some emergency funds and at the same time, you don’t want to liquidate your mutual funds portfolio too.
In such cases, borrowing against your portfolio is one of the smartest things to do.
A common reason for people to borrow against their portfolio over redeeming is the ease of accessing funds.
This kind of loan allows you to put your mutual fund portfolio as collateral and borrow up to 50% of the market value of your mutual fund investments.
Depending on the lender, you usually get a lower interest rate and most importantly, a flexible repayment tenure.
Evidently, loans against mutual funds have a lot of reasons as to why you should prefer them over traditional investments.
Here are some of those reasons:
Benefits of loans on mutual funds
A loan on your mutual funds comes with abundant benefits.
Seeking a loan by keeping your mutual funds as collateral is one of the quickest and easiest ways to get hands-on funds without having to liquidate your portfolio.
But that’s not all.
- Firstly, depending on the platform or lender you choose, you can easily borrow 50-90% of the value of your mutual fund investment.
- The repayment method for your loans is also flexible. Platforms like 50Fin allow a 12-month repayment period too.
- One of the best things is that the process is also extremely simple. Without involving any paperwork, you can borrow loans on mutual funds with digital documentation, all from your phone.
- Another important part is the fact that the loan is accessible even if the investor has an existing loan against their mutual fund investments.
Why most people prefer loans against mutual funds is very simple – it’s very convenient and allows investors to have funds on hand without liquidating their portfolio.
The technicalities of mutual funds loans
Now before we move further, we want to mention that the details on the mutual fund loans we mention hereafter are strictly for the 50Fin platform. Depending on the platform or lender you’re looking into, the interest rates or the tenure could be different.
Interest Rates:
50Fin allows investors to borrow a loan at an interest rate of just 10.50% per annum.
Loan Amount:
For an investor to be able to draw a loan against their portfolio, they must have a minimum portfolio value of Rs 50,000.
From there on out, you can easily avail a loan of up to even Rs 5 Crores.
Loan Tenure:
The default loan duration for a loan against mutual funds at 50Fin is set at 12 months.
However, the borrowers are also free to foreclose the loan at any point in time without any extra charges.
Application Process:
It only takes 4 working hours for 50Fin to approve a loan application.
The application process is distributed into four simple steps:
- Fetch your portfolio and all your investments
- Pledge your portfolio with 50Fin
- Sign the e-agreement and submit your documents
- Get your loan application approved.
Eligibility Criteria:
In order to borrow a loan against mutual funds from 50Fin, the borrower should be a resident of India, above the age of 18, self-employed/salaried resident (for equity and debt funding).
But how do loans against mutual funds really work?
It’s a common query among investors – how is our portfolio involved in this equation?
Here’s the thing.
With a loan against securities like mutual funds, your MF units will serve as the security in order to draw the loan.
These units are held as security by the bank till the loan is repaid in full.
During this phase, your mutual funds are locked and you can’t sell them. But you can still continue earning profits or dividends on them in the meantime.
You also need to know that the bank can strengthen the lien if the borrower doesn’t repay the loan by the deadline. This is applicable in the event of repayment default.
In such cases, the lender gives the mutual fund instructions to redeem the units and issue the lender a check.
Borrow loan on mutual funds with 50Fin
Loans on mutual funds have their fair share of benefits and features that almost no other form of traditional loans has.
Plus, the convenience of borrowing a loan is what makes these types of loans extremely favourable for people.
And if you want a quick way to get started, 50Fin is one of the best ways to do that.
50Fin allows investors to quickly borrow loans against mutual funds. With no minimum CIBIL score required, 4 working hours of approval time, and complete digital documentation, all you have to do is sign up on 50Fin.
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