Loan Against  Mutual Funds

The following steps elaborate, how a loan against MF works:

• Step 1: Offer Your Investment
  

  Firstly, select a bank or a non-banking financial company NBFC, a fintech platform that provides loans and pledges your holdings as security.

• Step 2: Lien Marking
  

  The lender marks a legal lien on your mutual fund units, as registered with CAMS or KFintech, which means you cannot sell or redeem them until the loan is cleared.

• Step 3:Overdraft facility and Loan Approval
  

  Lenders offer a loan as an overdraft facility, which allows withdrawal of a required amount up to the threshold. On the value of your pledged funds, a loan amount or overdraft limit is set, usually a percentage of the funds' net asset value NAV, known as the Loan-to-Value LTV ratio.

• Step 4: Instant Disbursal
  

  You are liable to pay interest on the withdrawn money for the duration you utilize. This makes LAMF a suitable option compared to a traditional term loan. Once approved, the loan amount is disbursed instantly or within hours.

• Step 5: Continued Ownership Returns.
  

  Your mutual funds are invested, you retain the ownership returns and continue to grow and receive dividends or potential capital appreciation while using the loan.

• Step 6: Flexible Repayment
  

  You repay the loan as per the agreed tenure. Once repaid, including the interest, the lender releases the lien and removes the mutual fund unit for future transactions.

Suppose you need instant money, so you choose to take an instant loan against your Mutual Fund investments.

Let us imagine you have invested Rs 2,00,000 in Mutual Funds, through SIP or lumpsum.

Case 1. Let’s suppose if you have invested in equity mutual fund you get loan amount of Rs 90,000 on your investment of 2,00,000 that is 45% of your total investment.

Case 2. Now, if you invested in a debt mutual fund, you get a loan of Rs 1,50,000 on your current investment, that is 75% of your total investment.

*Note: The loan amount is calculated based on the current Net Asset Value NAV of your mutual fund units.

Loan Against Mutual Funds offers several benefits. Here are the major ones:

1. No Fund Liquidation
   

   This is the most important benefit of LAMF, as there is no need to redeem your mutual fund holdings. Your investments continue to grow and earn returns while you borrow against them, as they offer an overdraft facility, preserving your long-term wealth creation.

2. Get LAMF Within Minutes
   

   Apply online with the simple steps without any paperwork and get a loan against mutual funds within minutes. Instant approval and digital processing make it fast, convenient and hassle-free for all investors.

3.  Approved Securities
   

   Both equity and debt mutual funds from SEBI-approved and AMCs are accepted as collateral. Make sure that your holdings are lien-marked and compliant to secure fast loan approval.

4. Loan Tenure
   

   Get benefits from flexible loan tenure options based on your financial needs that suit your cash flow and capacity, without putting pressure on your ongoing investments. The overdraft limit offers a tenure of 12 months.

5. Loan Value
   

   Get a loan of up to 75% of your debt mutual funds without the maximum limit and 45% of equity mutual funds with a minimum limit of 20 lakhs, calculated based on the current NAV of your holdings.

6. Attractive Interest Rate
   

   Enjoy competitive interest rates, often lower than personal loans or credit cards, as it mitigates lender risk. Mostly, it varies from 9% to 10%. This makes LAMF a more cost-effective and smart option to access emergency or planned funds.

7. Easy Repayment
   

   The loan against a mutual fund is made convenient with flexible EMI options or bullet payments. Customers only need to pay for the months they used. You can choose the method and schedule with a date that best suits your income and financial situation.

Follow these simple steps to apply for a loan with MySIPonline:

1. Research lenders and Check eligibility
   

   Select a bank or platform that offers loans against mutual funds with interest rates based on the current market value. Ensure you are between 18 and 75 years old and have access to mutual fund units in your own name.

2. Required Necessary Statements
   

   Documents like PAN number and KYC compliance, such as aadhaar, passport, driving license and voter ID, etc. The required paperwork detailing of the mutual fund you are holding.

3. Submit an Online Application
   

   Fill out the loan application form online through the website or mobile app on the lender's platform. Check before submitting the folio number, schemes and loan amount you desire.

4. Choose the Mutual Funds to Pledge
   

   You need to allow the lender to mark a lien on your selected equity or debt mutual fund unit you want to use as collateral. The lender must use online platforms that merge with Registrar and Transfer Agents RTAs, like CAMS and KFin technologies, to ease the lien marking process.

5. Get Loan Approval and Disbursal
   

   Once verified by the lender and the loan amount is determined based on the loan-to-value ratio. Get a loan or overdraft limit approved that is disbursed within minutes or in a few hours.

Consider the eligibility and criteria before getting a loan against a mutual fund.

• The age limit should be between 18 and 75 years old.
• You should be a resident Indian individual, but some applicants are available for individuals of Hindu Undivided Families HUFs and NRIs also.
• Customers having investments in mutual funds must be KYC verified as per SEBI guidelines and have a valid email ID and mobile number.
• Lenders may require a minimum mutual fund holding to approve the loan, while in some instances, a minimum holding of Rs 1 lakh.
• According to the loan-to-value ratio, customers would not get 100% of their investment. The loan in the equity fund is 45% and the debt mutual fund is 75%.
• Most lenders do not ask for a CIBIL credit score and this makes it accessible even for new investors.

Here are the following reasons that reflect whether it is a good choice or not:

• Accessing Quick Liquidity: LAMF allows investor to get a loan instantly by offering their mutual fund units as collateral, without disrupting long-term.
• Lower Interest Rates: Lenders offer low interest rates on MF units compared to personal loans or credit cards, which saves you money over time.
• Faster Processing: Most applications are approved quickly through digital platforms and AMCs, with funds disbursed within hours of lien marking.
• Flexible Repayments: Repay allows instant loans with an overdraft account means you have to pay the amount you used, not the entire sanctioned limit, but it depends on the lender.
• Ideal for Short-Term: Ideal for covering short-term expenses such as emergencies, medical bills or temporary cash flow gaps without messing with your long-term investment growth.