Apart from being a means of investment, mutual funds may also be a lifeline during a financial crisis. One such option accessible to investors is getting a loan against mutual funds. This facility offers fast access to money without selling your assets by letting you borrow money using pledged mutual fund units as security. What are the qualifying requirements, however, and who specifically would benefit from this facility? Let’s get into the specifics.
Loan Against Mutual Funds: Knowing this helps
One kind of secured loan where your mutual fund units serve as collateral is a loan against mutual funds. Depending on the lender’s policies, they can be debt mutual funds, hybrid funds, or equity mutual funds. Usually, up to a pre-selected Loan to Value (LTV), the lender provides you a set percentage of the value of each pledge you make. Though you won’t be able to redeem them until the debt is paid, you still enjoy capital appreciation on these units and keep earning dividends.
Personal Eligibility Criteria
Usually, Indian citizens who are single or joint owners of mutual fund units qualify for this lending program. Candidates have to be above eighteen and have current KYC documentation including an address proof, PAN card, and Aadhaar card. Though the amount of the promised mutual funds is often emphasized, certain lenders might also demand a credit score. This option is available to salaried people, self-employed professionals, and even retired people provided they satisfy the paperwork and fund value criteria.
NRIs and Joint Account Holders: Eligibility
Subject to FEMA ( Foreign Exchange Management Act) compliance and documentation filing under an Indian co-applicant or Power of Attorney holder, several banks and NBFCs give this loan option to Non-Resident Indians (NRIs). Joint account holders may also apply; all unit holders must sign the loan agreement, however.
Authorized Mutual Fund Programs:
Not every mutual fund qualifies for pledge-ability. Though the lender may reject sectoral or theme funds because of their volatility, equity funds are often approved. Particularly for those with short tenure and stable NAVs, debt mutual funds are also very popular. Depending on the lender’s policy, units have to be kept either physically or demat form. Before moving on, make sure your fund is included within the authorized scheme list of the lender.
Technology’s Instant Approval’ roles:
Many fintech businesses now provide loans against mutual funds via an instant cash loan app as digital finance is growing. These systems let you pledge units and have money distributed in a few hours, thereby streamlining the procedure by means of API connectivity with mutual fund registrars. From application to disbursal, the whole process, which tech-savvy investors in dire need of liquidity find to be seamless, can be done online.
Last Thoughts:
One clever financial instrument that combines the protection of your assets with flexibility is a loan against mutual funds. It is more strategic than liquidating your assets and quicker than conventional loans. Given choices like an immediate cash loan app, its simplicity appeals even more. Before you go, however, be sure you grasp the terms, conditions, and interest rates so you make a wise decision fit for your financial situation.