- By Aditya Pratap Singh
- Mon, 15 Jan 2024 02:05 PM (IST)
- Source:JND
How To Take Loan Against Mutual Fund: A mutual fund is an instrument to accumulate funds for a long-term goal. However, some investors set mid to long-term goals as Investing in mutual funds allows investors to build a good corpus by investing small amounts over some time.
A mutual fund is one of the preferred investment options in India as it usually offers higher than fixed deposits and other risk-free investment instruments.
Investing in Mutual funds is a recurring process. Meanwhile, There comes a situation where people withdraw money by selling mutual fund units in the short term. Financial uncertainty is the major cause for the act. But, it is better to take a loan against mutual fund units instead of selling it. This would give you flexibility and your investment would be intact.
Today, we will give insight into the process and eligibility to get a loan against a mutual fund.
What is the eligibility to take a loan against a mutual fund?
Loans against mutual fund assets are available to individual investors, NRIs, businesses, Hindu United Families (HUF), trusts, corporations and other institutions. However, minors cannot get loans against their mutual fund investment.
The amount of the loan is decided by various factors including the credit score of the applicant. Banks/Financing Institutions would decide the loan amount, loan tenure and interest rate. A better credit score can help you get a loan at a lower interest rate.
What would be the loan amount?
In the case of equity mutual funds, the loan amount can be up to 50 per cent of the net asset value. For fixed-income mutual funds, the loan amount can be up to 70-80 per cent of the net asset value.
The investor can approach a financing organization or bank and seek a loan against mutual funds.
Interest Rate
In the case of a loan against a mutual fund, units of the mutual fund act as collateral. In such a situation, the interest rate on a loan from a mutual fund is lower than that of a personal loan. The processing fees or foreclosure costs are reduced or waived.