Need cash but don’t want to sell your investments? A loan against MF can help. You can borrow money using your mutual funds as security without breaking them. It’s straightforward, fast, and can be accomplished online.
But before you get involved, there are a few things you should hold in mind. Here are six important points to remember.
1: Know the Eligible Fund Types
Not all mutual funds are accepted for loans. Most lenders prefer debt funds and liquid funds. Some may allow equity funds, but with stricter terms. Check with your lender about which fund types are eligible.
Also, make sure your mutual funds are in demat form. If not, you may need to convert them first.
2: You Get Only a Part of the Value
When you apply for a loan against MF, you don’t get the full value of your investment. Most lenders offer 50% to 70% of the current market value.
This is to protect against market drops. If the fund value falls, your loan amount may become higher than your holdings.
So, always plan your loan amount carefully.
3: Market Value Can Affect Your Loan
Mutual fund values go up and down. If your fund value drops too much, your lender may ask you to add more units. This is called a margin call.
If you can’t meet the margin, the lender might sell some of your mutual fund units. So, choose funds with low risk if you’re using them as collateral.
4: You Still Own the Funds
Even when you take a loan, your funds stay in your name. You don’t have to sell them. Once the loan is paid back, the lender releases the units.
This means you continue to benefit if your mutual fund earns returns during the loan period. That’s a smart way to keep your investments working.
5: Use a Trusted Personal Loan App
Some lenders now allow you to apply through a personal loan app. These apps are fast, easy, and fully online. You can upload your documents, check loan offers, and track your status in real time.
Just be sure the app is from a trusted lender. Check user reviews, ratings, and app permissions before installing it.
6: Understand the Interest Rate and Terms
The rate of interest for a loan against MF is usually lower than unsecured loans. But it still varies from lender to lender.
Always read the fine print. Check:
- Processing fees
- Foreclosure charges
- Late payment penalties
Compare 2–3 offers before you decide. A small difference in rates can save a lot over time.
Final Words
A loan against MF is a smart way to get money without selling your investments. It’s quick, simple, and cost-effective if used wisely. But like any loan, it comes with rules.
Know your fund’s value, track market risks, and use a reliable personal loan app to apply. Keep documents ready and choose terms that match your budget.
Borrow smart. Repay on time. And let your investments continue to grow.
