How Loan Against Mutual Funds Works

• Pledge Mutual Funds – The investor pledges equity or debt mutual fund units as collateral.
• Loan Amount Approval Financial institutions typically offer 50-75% of the Net Asset Value (NAV) of the pledged mutual funds.
• Loan Disbursement: The approved amount is credited to the borrower's account while they retain ownership of the mutual fund units.
• Interest and Repayment: Borrowers pay interest, which is usually lower than unsecured loans. Repayment can be structured through EMIs or as a lump sum.

Benefits of Loan Against Mutual Funds

• Quick Liquidity Access funds without selling mutual fund units.
• Lower Interest Rates: Since the loan is secured, interest rates are lower than personal loans or credit cards.
• No End-Use Restrictions: Use the loan for medical expenses, business needs, education, or any other purpose.
• Faster Approval Process Loan processing is quicker compared to traditional loans.

Risks of Loan Against Mutual Funds

• Market Volatility: A drop in mutual fund value may trigger a margin call, requiring additional collateral or partial repayment.
• Interest Costs: Although lower than unsecured loans, the interest still needs to be managed effectively.
• Repayment Default : Non-payment allows the lender to sell pledged mutual funds to recover the outstanding amount.

Eligibility Criteria

• Sufficient Mutual Fund Holdings: Investors must own mutual fund units of adequate value.
• KYC Documentation PAN, Aadhaar, address proof, and other standard documents required.
• Approved Mutual Funds Only specific mutual fund categories may be eligible, depending on the lender's policy.

Why Choose a Loan Against Mutual Funds?

• Ideal for individuals seeking liquidity without selling their investments.
• A smarter alternative to personal loans with lower interest rates.
• Retain ownership while still benefiting from potential market gains.

FAQs on Loan Against Mutual Funds

1. What is the loan against mutual funds interest rate?

Interest rates vary between lenders but are generally lower than personal loans, typically between 8-12% per annum.

2. Can I apply for a loan against mutual funds online?

Yes, many banks and NBFCs offer an online loan against mutual funds application process for faster approvals.

3. What happens if the mutual fund value drops after taking a loan?

If the value drops significantly, the lender may ask you to pledge more units or repay a portion of the loan.

4. Is there a prepayment penalty for closing the loan early?

Most financial institutions allow prepayment without penalties, but it's best to check with the lender.