Personal Finance
MONEY ON TAP: Loan against MF is a secured loan, hence interest rate is lower than that on personal loan
Updated : Nov 13, 2018, 06:50 AM IST
Life, however planned, springs surprises. Sometimes you may have to deal with financial exigencies arising out of medical emergencies, untoward accidents or tragedies arising out of natural calamities. Happy occasions like marriage or admission into an institute of higher learning abroad to realise life goals, though planned, might incur a substantial amount of money beyond your budget. Such situations demand urgent money. Raising money quickly by selling your investments might become a task as some of them are illiquid and sometimes they attract taxation issues. Other things remaining the same, if your investments are expected to earn rate of return higher than the rate of return payable on the loan, it makes sense to raise a loan against them.
If you have been investing in mutual funds, then you can raise money in minutes. Here is how to go about it:
Each lender fixes the minimum and the maximum amount of money an applicant can raise. The amount of money to be lent against MF units depends on the type of MF. Each lender will have a list of approved schemes against which he will lend. Typically, lenders are comfortable offering up to 50% of the value of equity mutual funds and up to 85% of value of bond funds.
If you are invested in a MF with whom the bank has not tied up, do not lose heart. You can still carry out the lien marking process by writing to the fund house or the RTA of the fund house. However this process takes time.
Not all branches of the lender offers loan against securities. If you are not applying online, you have to find out which branch offers this product.
As it is a secured loan, the rate of interest payable on these loans is way lower than that charged on personal loan.
Some lenders will offer you overdraft facility against MF units. In that case, you are charged interest only for the amount of money you borrow against your available credit limit and for the time period you borrow it. For this, some lenders, especially banks may ask you to open a separate current account.
A person without any credit history or even a poor credit history can raise loan in this manner.
Read the terms and conditions before signing above the dotted line or clicking the checkbox. You should know the charges associated with this facility. You can negotiate the same with your lender if you have a long standing relationship and a good credit score.
Make the most of this facility to overcome your credit needs at the least costs.
The writer is executive Director and CEO, Essel Finance