When you need funds quickly, borrowing against your investments can be a smart choice. A loan against MF (mutual funds) allows you to access funds without selling your investments. Mutual funds act as collateral, making the process straightforward.
This type of loan is helpful during emergencies or for planned expenses, as it keeps your savings intact while meeting your financial needs. Here’s a step-by-step guide to securing a loan against mutual funds easily.
1. Understand the Basics
A loan against mutual funds is a secured loan where your mutual fund units are pledged as collateral. Instead of liquidating your investments, you can borrow funds based on the value of your holdings. This means your investments will continue to grow while you use the loan for immediate needs.
The loan amount depends on the type of mutual fund you hold. Equity mutual funds typically offer 50-60% of their value, while debt mutual funds can offer up to 80-90%.
2. Check Eligibility
Before applying, ensure that your mutual funds are eligible for a loan. Most lenders accept mutual funds registered with NSDL or CDSL (depositories in India). Additionally, you should be the primary holder of the mutual fund units. Joint holders may need permission from all account holders before pledging the units.
3. Choose a Lender
Different financial institutions, such as banks and non-banking financial companies (NBFCs), offer loans against mutual funds. Compare their interest rates, processing fees, and terms to choose the best lender. Online platforms have also made this process easier by providing quick approvals and minimal documentation.
4. Prepare the Required Documents
Minimal paperwork is needed to secure a loan against mutual funds. The essential documents include:
- KYC documents (such as Aadhar card or passport)
- PAN card
- Mutual fund statement or folio number
- Bank account details for disbursement
These documents help the lender verify your identity and ownership of the mutual fund units.
5. Apply for the Loan
Once you have the required documents, the next step is to apply for the loan. Many lenders now offer online services, allowing you to submit your application digitally. Fill in the application form, provide the mutual fund details, and upload your documents.
The lender will then pledge your mutual fund units. Once the process is complete, the loan amount will be disbursed to your bank account.
6. Repayment Process
Repaying a loan against mutual funds is flexible. You can choose between paying interest only during the loan tenure and repaying the principal later, or opting for regular EMIs. It’s essential to repay on time to avoid penalties or the risk of losing your pledged investments.
Conclusion
A loan against MF is a convenient way to meet your financial needs while keeping your investments intact. By pledging your mutual funds, you can access funds quickly without disrupting your long-term financial goals. The process involves minimal paperwork and can often be completed online.
To make the process even simpler, consider using a loan app to apply. These apps allow you to complete the entire application digitally, making it faster and more convenient.
With the right approach, securing a loan against mutual funds is not only easy but also a smart financial decision.