Produced by: Tarun Mishra Designed by: Manoj Kumar
The amount of loan you can obtain against your mutual fund investments depends on the type of mutual fund scheme and the lending institution. For example, bank like HDFC offer loans up to 50% of the Net Asset Value (NAV) for equity mutual funds and up to 80% for debt mutual funds.
Not all banks provide loans against all mutual fund schemes; they often have a predetermined list of eligible schemes. Certain banks, like SBI and HDFC, offer loans only against mutual fund schemes managed by specific asset management companies.
Loans against mutual funds have minimum and maximum limits set by financial institutions. Private banks like ICICI typically set the minimum loan amount at Rs. 50,000 and the maximum at Rs. 20 lakh for equity mutual funds, with variations for debt mutual funds.
Loans against mutual funds generally have lower interest rates compared to personal loans and credit card loans due to their secured nature. Interest rates typically range from 8-10%, varying based on the pledged mutual fund units and the lending institution.
Pledging mutual fund units for a loan allows investors to maintain their market exposure and continue earning returns on their investments. Investors retain ownership of the mutual fund units, with the bank having the right to sell them only in case of default.
Many banks offer the convenience of applying for a loan against mutual funds online, streamlining the process for borrowers. Borrowers can also opt for an overdraft facility, allowing them to withdraw funds beyond their account balance, with interest charged on the excess amount.
Loans against mutual funds offer a cost-effective borrowing option with continued investment benefits, although borrowers should assess all available options before proceeding.