The Pros and Cons of Taking a Loan Against Mutual Funds

You invest in mutual funds, fixed deposits and other instruments in order to secure your future financially, and can opt out of them at any time in case of a financial emergency as they are liquid. However, this isn’t ideal as the process may take time and more importantly, you will lose out on substantial returns. Instead, to cater to such unforeseen circumstances use a loan against mutual funds.

You can apply for a Loan Against Mutual Funds from trusted lenders like Bajaj Finserv and avail a high loan amount of up to Rs.10 crore. Here you can enjoy nominal interest rates, online account management, a dedicated relationship manager and more by pledging mutual fund units as collateral. You can also use the Flexi Loan facility to make borrowing money even more convenient.

Read on to know you can benefit from a loan against mutual funds and what are the pointers to be careful of when you choose it.

Pros of a loan against mutual funds

  • It is an ideal option to raise capital for immediate or urgent short-term needs.
  • It will help you pledge your investment without losing ownership. In fact, your investment continues to earn interest, bonuses and dividends while being pledged as collateral.
  • The loan against mutual fund interest rate is typically lower as compared to a personal loan since it is secured. The interest rate of your loan also depends on the tenor, margin charged, and your credit score.
  • You can hand over ownership of certain units of your mutual funds to make repayments and you can also make part pre-payments or foreclose the loan at no extra charge.
  • You can swap securities through the tenor. This means that you can replace the mutual funds with other securities of the same value be it shares, IPO, ESOP, FMPs or insurance policies.
  • You can borrow funds on a Flexi basis when you choose Bajaj Finserv. Here you can borrow the amount as per your needs, in parts and pay interest on what you use and not what is sanctioned to you. You can also pay interest-only EMIs to manage cash flow and repay the principal as a lump sum at the end of the tenor.

Cons of a loan against mutual funds

  • It is a short-term funding option, which means you should avail it only if you are sure of being able to repay it on time.
  • You can only pledge those securities that feature in the lender’s approved list of scrips.
  • The loan to value ratio is around 50% which means that how much you can borrow depends on the worth of your securities. If you have securities worth Rs.30 lakh, you can only borrow up to Rs.15 lakh. That said, if you’re a seasoned investor with say Rs.1 crore in mutual funds, you can get a loan of up to Rs.50 lakh.

Now that you know how the pros outweigh the cons, you can get your hands on finance for emergent needs by paying low loan against mutual funds interest rates.

Bottom Line: With all the above-mentioned points stated about the pros and cons of a loan against mutual funds, it is also necessary to check your eligibility criteria before applying for the loan against mutual funds loan facility.

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