Investors often need access to large amounts of capital, and sometimes, need it immediately. Several financial lenders are offering attractive interest rates on mutual funds to kick-start business investments. Loan offerings on mutual funds are in line with the growing confidence of investors in mutual fund schemes.
In 2018, total AUM or Asset Under Management (AUM) in India reached Rs. 4.75 lakh crore. Additionally, most people invest in these schemes for their long-term potential. With Loan against Securities (LAS) schemes, you can protect these investments against unforeseeable business needs. Loans against mutual funds are also a lot easier to avail. The digital nature of loans against mutual funds ensures investors receive their loan amount in minutes.
What Is It? And How Does It Work?
If you have a Systematic Investment Plan (SIP), you will need to fill out an application form with all its details to the lenders. Financial lenders differ in which schemes they choose to support. However, you can borrow 50% to 60% in various equity schemes, and 70-80% on debt funds, in general. The key to remember here is that loan against mutual funds are given on the net asset value of the mutual funds.
This value represents the mutual fund’s per-share market value in simple terms.
Interest Rate for Mutual Funds Loans
Loan against mutual fund interest rates is one of its major benefits. Since the investment is secure, you will generally get a rate of interest between 9.5%-12%. Moreover, the processing fees for these are as low as 0.15% in most cases. If you have a good credit score, financial lenders are also more flexible in lowering interest rates depending on each case.
Security or Lien
To get a loan against mutual funds, you will need to sign a lien over to the financial institution or NBFC. Lien is a financial document that gives the lender the authority to sell the funds in case of default in repayment.
How to Apply
As mentioned earlier, applying for a mutual fund loan is much easier than other loan schemes. Many financial lenders provide an option on their online portal to apply for a loan. Moreover, if you have physically applied for investing in mutual fund schemes, the agreement should be in place with the financial institution.
The tenure for a loan against mutual funds provides flexibility, similar to other loan schemes. However, the important thing to remember here is that – you can free up your mutual funds partially during the tenure. After you have paid off part of the loan, you can request the financier to request the fund house to lift the lien. So, in some ways, the loan offers more flexibility as compared to other schemes, as you can borrow again if needed.
- Instant liquidity
- An excellent way to raise capital on an idle investment
- Protect long term investments
- Lower interest rates than personal loans
Things to Remember
Your financial institution or NBFC may reserve the right to sell the mutual fund, but you can continue to receive dividends on these schemes.
Not all mutual funds schemes will grant you a loan. Financial lenders vary in this regard based on their assessment of the specific fund.
Both equity and debt funds can offer loans. However, do check with financial lenders about the specific fund before purchasing a new one.
Many NBFCs are exclusive providers of the loan against mutual fund schemes and provide loans on over 1500 mutual fund schemes. According to RBI regulations, only NBFCs with a capital of over Rs. 100 crores can offer these schemes.
Loans against mutual funds promise several benefits to investors. The growing awareness of these will lead more investors to move away from alternate options. If you have never considered the possibility of a loan against securities, Fullerton India provides a personal relationship assistant to help you through the entire process.
Loan against mutual funds promise several benefits to investors. The growing awareness of these will lead more investors to move away from alternate options. But before opting for it must check the loan against mutual funds interest rate options available.
If you have never considered the possibility of loan against securities, Fullerton India provides a personal relationship assistant to help you through the entire process.