When there is a financial need, you can use your mutual fund investments as a mortgage to avail the advance and that too without liquidating your funds. Almost all banks and NBFCs provide the loan against mutual funds and it has many advantages as well. You can apply for a loan against mutual fund investment at rates comparatively lower than personal loans. Read here the advantages also the interest rates on loan against mutual funds offered by top banks in India.
How to Apply for Loan against Mutual Fund Investment?
You can apply online if you hold mutual fund units in demat form and have a prior approval. However, if you hold the units in physical form, you need to execute a loan agreement with your financier. The role of the financier is to write to the mutual fund registrar like CAMS or Karvy and ask them to mark a lien on a certain number of units that are being pledged. Lien is a document that gives the bank the right of ownership to hold or sell the funds. The loan will be offered to you on the basis of the value of units held in the folio of your mutual fund account. After the repayment of the loan, the bank will lift the lien and you get the rightful ownership of your mutual fund units. Lenders generally lend about 60-70% of the value of the pledged units. Some of the top banks where you can apply for a loan against mutual funds are as follows:
- Bajaj Finserv
- State Bank of India (SBI)
- Axis Bank
- HDFC Bank
- ICICI Bank
Loan Against Mutual Funds Interest Rates September 2023
The interest rate on loans against mutual funds is comparatively lower than personal loans. Below are the interest rates on loan against securities at top 5 banks:
|Banks||Interest Rate (p.a.)||Loan amount||Processing Fees|
|State Bank of India (SBI)||11.15%||Equity/Hybrid/ETF Mutual Funds: Up to ₹20 lakhs|
Debt/FMP Mutual Funds: Up to ₹5 crores
|0.75% of the Loan Amount + applicable GST (Max: ₹50,000 +applicable GST)|
|Axis Bank||10.50% to 12.50%||Upto 85% of security value||0.15% of the loan amount or ₹1000/- whichever is higher plus GST|
|HDFC Bank||8.15%-12.85%||Up to 80% of the value of the securities||Up to 1% of the loan/sanctioned credit limit, subject to a minimum of ₹2,000/- (Non-Refundable|
|ICICI Bank||8.25%-12.00%||Up to ₹20 lakhs||₹3500 plus applicable GST. CARLB Cases : 0.25% of the loan amount subject to a minimum of ₹5000 plus applicable GST.|
|Bajaj Finserv||9% – 12%||Up to ₹10 crores||0.25% to 1.00% of loan amount|
What are the advantages of Loan against Mutual Funds?
There are many advantages of taking a loan against mutual funds that differentiate it from other loans. Unlike other loans, loan against mutual funds has following benefits:
- The option of receiving immediate liquidity against the mutual fund units you own.
- Similar to an overdraft facility for short-term monetary requirements taken for a shorter period of time
- Tool to leverage idle mutual fund investments and raise capital
- You do not have to sell your mutual fund units and the ownership of fund units remains intact after pledging them for a loan
Disclaimer – Mutual Funds are subject to market risks. Please read the scheme related documents carefully before investing.