Loan Against Your Mutual Funds
Investing in mutual funds is one of the popular options that helps in growing wealth. Customers can meet immediate monetary needs without liquidating their assets by availing loan against mutual fund units at a rate of interest up to 20%.
What is a Loan Against Mutual Funds?
Loan Against Mutual Funds (LAMF) lets investors access funds without redeeming investments. Offered as an overdraft, it provides credit limits from Rs.10,000 to Rs.20 lakh for individuals, with higher limits for businesses. During financial emergencies, LAMF provides liquidity while allowing investors to retain ownership, as selling mutual funds may disrupt long-term goals.
Interest Rates of Loan Against Mutual Fund
The interest rates offered by various banks and financial institutions on loans against mutual funds are given in the table below:
Lenders | Interest Rate (p.a.) |
State Bank of India | 10.10% |
Bajaj Finance | Up to 15% |
Mirae Asset Financial Services | 10.50% |
Tata Capital | 10.00%-20.00% |
Axis Bank | Less than Personal loan interest rate (starting form 11.10%) |
Bank of Baroda | 9.65%-11.00% |
Features of Loans Against Mutual Funds
The key features of loans against mutual funds are mentioned below:
- Offers 90% of the fund value as pre-assigned loan limit which is a maximum amount of Rs.1 crore.
- Individuals can avail themselves of loans against mutual funds with just three documents with over 5000 funds from more than 40 AMC.
- Interest will be charged on the amount withdrawn from the pre-assigned loan against mutual funds.
- Borrowers can earn interest continuously on your funds without selling your funds.
- The loan limit will depend on the type and value of the fund.
- Get loan statement and manage loan online from the dedicated customer portal.
- Extra credit will be offered if the value of the mutual fund increases during the loan tenure.
- Provides pre-approved offers to new and existing customers.
Benefits of Loans Against Mutual Funds
Access to Funds Without Selling Investments: Investors can borrow money without liquidating mutual funds, allowing them to benefit from market appreciation.
- Lower interest rates as the loans are secured, interest rates are lower than personal loans or credit cards.
- Loan tenures range from a few months to several years, providing repayment flexibility.
- Retain ownership and earnings by enabling investors to earn dividends or interest from mutual funds during the loan tenure.
- A decline in mutual fund value may trigger a margin call, requiring additional collateral or partial loan repayment.
- Investors cannot redeem, or switch pledged mutual fund units until the loan is cleared.
- In case of default, lenders can sell pledged units, potentially causing financial setbacks.
- Ideal for liquidity requirements as it is suitable for those needing quick funds without disrupting long-term financial goals.
- LAMF is a cost-effective alternative compared to unsecured credit options such as personal loans or credit cards.
- Borrowers should assess repayment capacity, compare lenders, and understand terms before availing themselves of the loan.
How to take a Loan Against Mutual Funds
The steps to obtain loan against mutual funds are given below:
- Choose a lender, such as banks, NBFCs, and fintech platforms that offer loans against mutual funds.
- Check fund eligibility to ensure the selected lender accepts the specific mutual funds as collateral.
- Provide investment details by submitting folio numbers and scheme names as part of the application process.
- Sign a lien agreement to authorize the lender to mark a lien on pledged mutual fund units.
- The lender gains the right to sell pledged units in case of loan default.
- Once the lien is marked, the loan amount is credited to the investor’s account.
Eligibility Criteria for Loan Against Mutual Funds
To avail yourself of loans against mutual funds, applicants should fulfill the below eligibility criteria:
- Age Criteria: Lenders provide loans against mutual funds (LAMF) to individuals aged between 18 and 90 years.
- Most lenders do not specify a minimum credit score, but some set a requirement.
- LAMF is available to salaried and self-employed individuals, companies, proprietorships, trusts, partnerships/LLPs, NRIs, and HUFs.
- The minimum portfolio value required is approximately Rs.50,000.
- Pledged Mutual Funds Criteria:
- The mutual funds must be from recognized and approved Asset Management Companies (AMC).
- Most lenders accept mutual funds registered with both CAMS and Kfintech.
- Some lenders restrict LAMF to only CAMS-registered mutual funds.
Documents Required for Loan Against Mutual Funds
The documents required for applying for loans against mutual funds are given in the list below:
- Identity proof (any of the following):
- Aadhaar Card
- Voter ID
- Passport
- Driving Licence
- Proof of address (any of the following):
- Voter ID
- Aadhaar Card
- Driving Licence
- Passport
- Proof of signature (any of the following):
- PAN card
- Banker sign verification
- Passport
- Self-attested statement of mutual fund
- Current account statement of holding for mutual funds
Fees and Charges
The fees and charges applicable for loans against mutual funds is mentioned in the table below:
Particulars | Charges |
Processing Fees | Up to 5.00% of the sanctioned loan amount |
Annual Maintenance Fees (AMC) | 0.1% – 5% of the loan amount |
Renewal Fees or | Up to 1.18% of the sanctioned amount |
Penal Interest | 15% to 36% p.a. |
Prepayment/Foreclosure Charges | Nil |
Pledge Charges | Varies across lenders |
FAQs on Loan Against Mutual Fund in India
- How can I get a loan against my mutual fund units?
To get a loan against mutual funds, pledge your units with a lender. Demat units are pledged via NSDL/CDSL, while physical units require a lien from RTAs (Registrar and Transfer Agencies) like CAMS/Karvy.
- How much loan can I get against my mutual fund investments?
The loan amount depends on the pledged mutual fund type. LTV (Loan to Value) ratio ranges from 50%-90% of NAV (Net Asset Value), with RBI (Reserve Bank of India) capping equity funds at 75%, while debt funds vary.
- Do all banks offer mutual fund loans?
Most banks and NBFCs offer mutual fund loans directly or under LAS (Loan Against Securities) schemes. Borrowers can apply at branches or compare offers on online platforms.
- Can I get a loan against any of my mutual fund schemes?
Yes, you can obtain a loan against any of your mutual fund schemes from a list of approved mutual fund schemes for LAMF provided by the lenders. Borrowers should verify eligibility, as loans are not offered against Equity Linked Saving Schemes (ELSS) which is also known as tax saver or tax saving mutual funds.
- Do all banks offer online loans against mutual funds?
Yes, most banks and NBFCs (Non-Banking Financial Institutions) offer mutual fund loans online and offline. HDFC and Tata Capital accept digital applications, while some lenders provide only online options.
- Do I have to pay interest on my unused LAMF limit?
Yes, you need to pay interest only on the utilized amount, not on the unused sanctioned limit, ensuring cost-effective borrowing as LAMF is provided as an overdraft facility.
- Would I continue to receive dividends after pledging my mutual fund units?
Yes, you would continue to receive dividends after pledging your mutual funds units. Pledge your mutual fund units does not affect your ownership. Any dividends or other benefits associated with the MF (Mutual Fund) units will still be credited to you even when the loan is active.
- Can I sell my pledged mutual fund units before closing the loan?
No, you cannot sell your pledged mutual fund units before closing the loan with the concerned lender. Once the units are pledged, they are marked with a lien in favor of the lender, which prevents redemption or sale until the loan is fully repaid.
- Do banks and NBFCs charge any foreclosure or prepayment fee on their mutual fund loans?
No, banks and NBFCs typically do not charge foreclosure fees on mutual fund loans in overdraft form. However, any prepayment charges should be confirmed with their lender by the term loan borrowers.
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