What Are The Benefits Of Loan Against Mutual Funds?
Have you been wondering if a loan against mutual funds is the right choice for you? Before making your decision, it’s vital to have the right information and understand all the benefits of this type of loan. Investments in mutual funds can prove to be a powerful tool for diversifying and growing your portfolio.
However, when life throws challenging financial hurdles, you might need quick access to cash without compromising on the rewards of mutual fund investments. That is when a loan against an instant loan against securities such as mutual funds may come in handy. This blog explains the benefits of loan against mutual funds. But first, let us understand what it is and who can apply for it.
What is a loan against mutual funds?
A loan against mutual funds is a type of quick loan online that gives you access to liquidity while helping you enjoy all the benefits of mutual fund investments. For MF investors looking for urgent cash without compromising their returns on investments, it is a viable choice. Borrowing against mutual funds allows you to pledge your MFs to the institution lending you money.
Every Indian citizen who is 18 or above and has investments in equity or debt mutual funds is eligible for such a loan. The credit limit will, however, depend on the value of their MF units. All you have to do to unlock the quick capital is to figure out the amount you need, assess the value of your portfolio, approach a Bank/NBFC that offers such a loan facility, and follow the application process.
Since enumerable lending institutions offer such a loan, it is wise to compare a few on their terms & conditions, the interest rate they charge, and the loan amount they provide before finalizing one for your cash needs.
Benefits of a loan against mutual funds
What makes a loan against mutual funds a prudent choice for MF investors are the benefits that it comes with ? Listed below are a few of them. Read on to learn about them.
Minimum documentation
Borrowing against mutual funds does not require you to undergo a hefty documentation process. Many lenders, including Abhiloans, do not ask for your income proof and check your credit history for sanctioning the loan. These institutions require you to submit only KYC documents and proof of your MF investments.
What else is needed are your photograph and signature. And the best part when applying for a quick loan online is that you need to provide only digital copies of these documents. On the contrary, when you consider taking a personal loan or other unsecured loans, the worries of high credit scores and income inconsistencies may limit your loan choices.
Low-interest rates
Another advantage to its credit is that a loan against securities such as mutual funds comes with low-interest rates. At NBFCs like Abhiloans, it could start at 0.67%/month, which converts to a yearly flat rate starting from 8%, depending on the plan you select. The rate may, however, differ from lender to lender.
Apart from low interest, a loan against mutual funds is available at a bare minimum processing fee, which could be as high as 2% of the loan amount +GST. It might vary from one financial institution to another.
Flexible repayment options
The pre-closure option is one of many key advantages of taking a quick loan online against your mutual fund units. With this type of loan, borrowers have the leverage to pay at will.
That means if they wish to pre-close their loan, they can whenever they want during the loan tenure. And if they take the loan from Abhiloans, they have no added burden of additional prepayment charges.
Quick loan disbursal
Usually, with other loan types, it takes days or even weeks in some cases to get the loan approved and disbursed. But when you opt for an instant loan against securities such as mutual funds, you will not have to wait much, thanks to the online availability of banks/NBFCs.
Many lenders with online footprints make loan disbursal possible within hours. For example, Abhiloans, a leading NBFC, promises to disburse the loan into your account in as many as four hours.
Tax benefits
When you pledge your mutual fund holdings as collateral to get a quick loan online, you get an exemption on various taxes applicable in case of selling them off. That is because selling MF units is considered a capital gain, which may attract various taxes, ranging from 10-15%.
This benefit of a loan against mutual funds makes it a likable choice for investors seeking quick liquidity without jeopardizing their growth prospects and chances of returns.
No effect on mutual fund investments
Mutual funds investors tend to have mid-to-long-term financial goals. Unforeseen events like job loss, medical emergencies, and others may hurt an investor’s financial stability raising the need for urgent capital. That is when investors may be bound to liquidate their MF holdings, which may interrupt their ultimate goal, enforcing unexpected losses.
The other choice, indeed the wiser one, is to take a loan against mutual funds instead. This way, investors can avail of quick funds without risking their investments. When you pledge your MF holdings to get an instant loan against securities, those units stay market-linked, allowing you to gain continual dividends and returns.
In conclusion
The bottom line is a loan against mutual funds is a feasible solution for those needing quick funds without liquidating their MF investments. But to reap those benefits, you need to find a lender that provides quick disbursal, does not ask for your credit score, applies no prepayment charges, and offers competitive interest rates.
One such lender that meets all those requirements and gets you a loan to fit your varied loan needs is Abhiloans. Here, the loan against mutual funds’ maximum limit could be Rs. 1 Crore.