Loan Against Mutual Funds: Process, Eligibility, and Interest Rate

If you need to borrow money and have investments in mutual funds or stocks that you can use as collateral, taking out a loan against mutual funds or stocks may be a smart alternative. Loan Against Mutual Funds (LAMF) is a financial solution that allows you to arrange an overdraft capacity against the units of your mutual fund. The loan is accessible as an overdraft facility, allowing you to access and return cash at any moment without incurring additional fees. Interest is only levied on the amount used and for the term that the funds are used. Let’s read more about the loans against mutual funds in this article.

Also Read: Documents for Personal Loan

Benefits and Features of Loans Against Mutual Funds

You may now safeguard yourself from unwanted events by taking out loan funds backed by your assets by obtaining loans against mutual fund (LAMF). Here are some of its features:

• A lien on mutual funds secures the loan. Banks can use liens to sell or keep cash. As a result, by marking a claim, you give the bank control over the fund units you own.
• The entire procedure is computerised, and money is credited instantly.
• A loan is available to both debt and equity funds.
• You may get up to 45% off equities mutual funds and 75% off debt mutual funds. 
• Customers are not required to liquidate their mutual fund holdings.
• First-time consumers with no credit history can get loans against mutual funds.

Now let’s look at some of the benefits of loans against mutual fund-

• Get LAMF Limit in Hours Online: There is no need to wait long. Get immediate clearance on LAMF within three working hours.
• Various Mutual Fund Schemes: You can discover how much loan you may borrow against your savings from a list of over 5000 mutual fund plans.
• You can make a payment towards your outstanding mutual fund loan amount at any time with no foreclosure costs.
• Attractive Interest Rate: You may now easily obtain a loan on mutual funds with an interest rate of 10.5% per annum, which is cheaper than unsecured loans and credit cards. 
• Mutual funds can be lien marked for both CAMS and KFin (formerly known as KARVY), Registrars and Transfer Agents (RTAs).
• Retain Investment Ownership: By pledging cash as security, you may keep ownership of your investments.

Also Read: Minimum Salary Required to Get a Personal Loan

Eligibility Criteria of Loans Against Mutual Funds

Here are the eligibility criteria for loans against mutual funds-

A loan against mutual funds is available to Indian nationals aged 18 to 75 with a credit score of 500 or higher or who are new to credit. A single PAN card can have up to two loan accounts, one for equity mutual funds and one for debt mutual funds.

Also Read: Difference Between Secured and Unsecured Personal Loans

Documents Required for Loans Against Mutual Funds

You can use a selection of authorised mutual funds from different asset management firms (AMCs) in India as collateral. Mutual funds registered with CAMS and KFintech (formerly known as KARVY), Registrars & Transfer Agents (RTAs) can be used as collateral to lien mark. It is recommended to get a secured loan against mutual funds as a reasonable choice for short or medium-term financing. Let’s see the required documents for loans against mutual funds-

• PAN card
• Recent photograph
• Proof of identity
• Proof of address
• Bank account proof
• Demat account proof
• Mutual fund holding statement
• Income proof

Also Read: How to apply for a loan without income proof?

How to Apply for Loans Against Mutual Funds

Here is a step-by-step guide on how to apply for loans against mutual funds-

• Navigate to your bank’s website.
• Enter your NetBanking login information.
• Select the Demat option.
• Select the Request option.
• Choose Loan Against Securities.
• Log in to your CAMS account using NetBanking.
• Choose the Mutual Funds you want to commit.
• To activate the facility, you will be given a one-time password.

Interest rates and Charges of Loans Against Mutual Funds

On loans against Mutual Funds, you would have to pay an interest rate of 7-15% p.a. This will vary depending on the bank and the tenure. Interest is levied based on the amount borrowed and the term of the loan. Because it is a secured loan, the interest rate will be lower than that of an unsecured loan. When compared to other choices such as personal loans or loans against credit card, this option has cheaper interest rates. This is largely because a loan against mutual funds is a secured debt. It is a viable borrowing alternative for short-term financial need.

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