A Loan Against Mutual Fund is a financial option that allows individuals to take advantage of their mutual fund investments to secure a loan.
This innovative borrowing solution enables investors to access immediate liquidity without using their mutual fund units. The loan amount is typically a percentage of the current value of the mutual fund portfolio.
This approach offers a unique advantage, allowing individuals to address short-term financial needs while maintaining their investment positions in mutual funds, potentially benefiting from market gains.
Reasons to Take a Loan Against Mutual Funds
If you are wondering why to take a loan against mutual fund, then here is the answer. In cases of requirement of money, get quick cash without selling your mutual funds, just choose to take a Loan Against Mutual Fund. It's a smart way to meet urgent needs while keeping your investments intact. Here are concise reasons to consider this option:
Immediate Liquidity: Access cash without selling your mutual fund units.
Market Participation: Continue to benefit from potential market gains.
Lower Interest Rates: Enjoy generally lower interest rates compared to personal loans.
No Impact on Investments: Shield your portfolio from liquidation.
Flexible Repayment: Manage the loan with adaptable repayment terms.
Potential Tax Benefits: Enjoy tax deductions on interest payments.
Interest Rates for Loan Against Mutual Funds
A loan against mutual funds can help you use your investments as collateral to access funds. Understanding the interest rate of loans against Mutual funds is crucial for those considering this option.
Understand the costs and make informed decisions when using a loan on MF for immediate financial needs.
| Interest Rate for Loan On Mutual Funds | 9.40% to 15% p.a. |
Top Banks Providing Loan Against Mutual Funds
Loans Against Mutual Funds from SBI, HDFC or ICICI bank are some of the few popular options for people looking for this type of loan. Mutual fund investments serve as collateral for a loan. Knowing the top banks offering this service is crucial for those looking to access funds conveniently while safeguarding their investments.
Some of the common banks and NBFCs that provide loan against mutual funds include:
| Bank/NBFC | Interest Rate(p.a.) | Processing Fee |
|---|---|---|
| State Bank of India(SBI) | 9.40% - 9.90% p.a. | 0.75% + GST |
| Axis Bank | 11% – 13.25% p.a. | 0.15% + GST |
| HDFC Bank | 5.9% – 14.1% p.a | 1% + GST |
| IndusInd Bank | 8.00% – 10.25% p.a. | 0.50% |
| ICICI Bank | 6.50% – 10.30% p.a. | 0.50% + GST |
| Bajaj Finserv | Up to 20% p.a. | Up to 4.72% of loan amount |
| Tata Capital | Starting at 10.50% p.a. | Up to 1% of loan amount |
| Federal Bank | Starting at 10.75% p.a. | Up to 1% |
| Kotak Mahindra Bank | 8% to 10% p.a. | Rs.50-1,000 based on loan amount |
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Note: These rates are indicative and subject to change. Always check with the bank for the most up-to-date information before making any investment decisions.Need a personal loan?
Eligibility Criteria For Loan Against Mutual Funds
In order to access a Loan Against Mutual Funds, understanding the eligibility criteria is key. It helps you understand if you are eligible of taking a loan on a mutual fund or not.
To simplify the process, the table below sheds light on the basic requirements you need to meet to avail of this financial option:
| Employment Type | Both Salaried/Non-salaried |
| Nationality | Indian |
| Age | Between 21 - 60 years(on loan closure) |
| CIBIL score | 650 and higher |
| Mutual Fund Holdings | Minimum investment of Rs. 50,000 in mutual funds with the lender. |
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Documents Required For Availing Loan Against Mutual Funds
Are you considering a loan against mutual funds? Then, understanding the necessary documents is crucial. Knowing these documents will help you process your loan quicker without any hassle.
Have a clear overview of the documents required for a loan on mutual fund through the table below:
Mutual Fund Statement:
A statement showing your mutual fund holdings from the registrar and transfer agent (RTA) of the mutual fund scheme.
Identity proof (any 1)
Aadhaar card/ Passport/PAN card/Driving licence/Voter Id
Proof of address (any 1)
Aadhaar card/ Passport/ Valid voter ID/ Utility bill/ Driving licence
Other Documents
Recent passport size colour photographs
Signed application form
Proof of employment and Salary slip
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Features & Benefits of Loan Against Mutual Funds
Loan Against Mutual Funds offers a range of features and benefits tailored to meet the financial needs of individuals. Here are some:
Secured Loan
Secured loans with Mutual
Funds as collateral
Competitive Interest
Rate
Get lower interest rates
compared to unsecured
loans.
Quick Disbursement
Enjoy quick disbursement
of loan for immediate
needs
Retain Liquidity
Access liquidity without
selling mutual funds
Flexible Repayment
Get repayment tenure
up to 36 months
Easy Repayment
Enjoy flexible repayment
options for your loans
Loan Amount for Loan Against Mutual Funds
The Loan-to-Value Ratio (LTV) is a crucial factor in Loan Against Mutual Funds (LAMFs). It determines the maximum loan amount you can borrow against the value of your pledged mutual funds. Representing the percentage of the mutual fund's value that the lender is willing to lend.
For instance, if the LTV is 50%, you can borrow up to 50% of the value of your mutual funds.
LTVs differ based on the type of mutual fund you pledge:
Equity Mutual Funds: LTVs for equity mutual funds typically range from 30% to 50%.
Debt Mutual Funds: LTVs for debt mutual funds are generally higher, ranging from 60% to 80%.
How to Calculate LTV Ratio for Loan Against Mutual Funds?
The LTV ratio is the percentage of the value of your pledged mutual funds that the lender is willing to lend. It is calculated as follows:
LTV ratio = (Loan amount / Value of your Mutual Funds) x 100
For example:
For a loan amount of Rs. 30,000 against the value of your mutual funds worth Rs. 1,00,000:
The calculation will be as follows:
Loan amount: Rs 30,000
Value of your Mutual Funds : Rs 1,00,000
LTV= 30,000/ 1,00,000 x 100 = 30%
Hence, your LTV ratio will be 30%
NOTE:
Own mutual funds? Some banks let you turn them into collateral for secured loans and benefit from lower interest rates compared to personal loans or credit cards. This smart borrowing strategy which keeps your investments intact while providing access to quick funds.
While loan repayment is ongoing, your mutual fund investments remain locked, but they continue to generate returns and dividends.
Looking for a personal loan?
How To Apply For Loan Mutual Funds
Securing a mutual fund loan is a straightforward process. Follow these key steps to obtain a loan against your mutual fund investments.
Check Eligibility:
Ensure you meet the eligibility criteria set by the lender. This often includes being an Indian citizen with a valid PAN card, having a minimum age of 18 years, and maintaining a satisfactory credit score.
Select Mutual Funds:
Identify the mutual fund units you want to pledge as collateral. The lender may have restrictions on the types of mutual funds accepted.
Choose a Lender:
Compare interest rates, loan-to-value ratios, and repayment terms offered by different lenders to find the best deal.
Gather Documents:
Prepare the required documents. You can check the ‘documents required’ section above to understand the necessary documents required for a loan against a mutual fund.
Apply Online or Offline:
Most lenders offer online application options through their websites or mobile apps. You can also visit a branch of the chosen lender to apply in person
Verification and Approval:
The lender will verify your information and assess your eligibility. Upon approval, you'll receive a loan sanction letter with details like loan amount, interest rate, tenure, and repayment schedule
Margin Pledge:
Pledge the selected mutual fund units as collateral by signing a margin pledge agreement with the lender.
Loan Disbursement:
The approved loan amount will be disbursed into your designated bank account.
Frequently Asked Questions
Loan against mutual funds (LAMF) is a secured loan that allows you to borrow money against the value of your mutual fund investments.
To be eligible for a loan against mutual funds, you must be an Indian citizen aged 18 to 75 years with a credit score of 500 or more, or new to credit.
The loan amount you can get against your mutual funds depends on the type of mutual fund scheme you have invested in and the financial institution from which you will borrow.
Yes, you can continue to earn returns on your mutual funds while they are pledged as collateral. In fact, the interest earned on your mutual funds will be added to the loan balance, which will reduce the overall amount of interest you have to pay.
The interest rates for a loan against mutual funds (LAMFs) in India typically range from 9.50% to 12.50%.
The tenure for a loan against mutual funds (LAMF) typically ranges from 12 to 36 months. However, some lenders may offer longer tenures of up to 60 months.
Loan against mutual funds allows you to access liquidity without selling your investments, preserving your long-term financial goals.
The total amount of loan you can get based on your mutual funds depends on the type of mutual funds you hold, their Net Asset Value (NAV), and the lending institution. Banks typically offer up to 50% of the NAV for equity mutual funds and 80% for debt mutual funds as a loan amount.
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