Loan Against Mutual Fund Interest Rates
Last Updated : April 15, 2020, 8:17 p.m.
Want to pledge your mutual fund units to secure a loan and meet your needs? There are banks that offer you the loan against mutual fund units. But how much interest will they charge on such a loan? The sooner you know the more time you will get to adjust your budget and ensure a successful repayment track. Needless to say, lower interest rates decrease your loan obligations and vice-versa. Keeping this in mind, we have shown the interest rates of different lenders on a loan against mutual funds. So, compare and choose the best one for you.
Interest Rates of Lenders Providing Loans Against Mutual Funds
| Lenders | Interest Rate (In Per Annum) | Maximum Loan | Processing Fee (In INR) | Annual Charges (In INR) |
|---|---|---|---|---|
| State Bank of India (SBI) | 10.40% | Upto 50% of the NAV (Equity/Hybrid/ETF mutual funds) Maximum Limit - 20 lakh Upto 85% of the NAV (Debt/FMP mutual funds | 0.75% of the loan amount, subject to a maximum of 50,000 | 1,000 |
| HDFC Bank | Customized | Upto 50% of the NAV (Equity Funds) Upto 80% of the NAV (Debt Funds) | 1% of the loan amount | 0.50% of the loan amount, subject to a minimum and maximum of 1,000 and 5,000, respectively |
| ICICI Bank | Customized | Upto 50% of the NAV, subject to a maximum of INR 20 Lakh | 3,500 or 0.50% of the loan amount, subject to a maximum of INR 5,000 | 2,500 |
| Axis Bank | 10.50%-12.75% | Upto 60% of the NAV (Equity Funds) Upto 85% of the NAV (Debt Funds) | 0.15% of the loan amount or 1,000, whichever is greater | 1,000 (Equity Funds) 0.10% of the sanctioned amount or 5,000, whichever is lower |
| Bank of Baroda (BoB) | 7.75%-8.50% | 20 Lakh (Equity Funds) 1 Crore (Debt Funds) | 0.35% of the sanctioned amount, subject to a maximum of 2,500 | 0.35% of the sanctioned amount, subject to a maximum of 1,250 |
Note – One-time processing fee and annual charges will also include the 18% Goods and Services Tax (GST). Plus, the NAV stands for Net Asset Value, which is the price of a mutual fund unit.
How Will the Interest Apply to Loans Against Mutual Funds?
Now that you know the interest rates and other charges of different lenders, you can thus compare and choose the one that helps you save more. Since it’s not a typical term loan, the interest servicing will differ. Yes, the sanctioned amount will be disbursed to a new current account as an overdraft. The interest will apply to the amount you withdraw from the overdraft limit and not the entire amount. So, the typical EMI payment won’t be there. The interest servicing will happen by way of credits in the current account.
How Will the Loan Impact Your Mutual Fund Holdings?
The loan amount will be disbursed according to the NAV of the mutual fund which gets pledged. The number of pledged units will be calculated by dividing the loan amount by the prevailing NAV of the fund. In case the loan disbursed equals to INR 7 lakh and the NAV of the fund is INR 500, your 1400 units will be pledged. Once the loan repayment is over, you will get back your 1400 units.
For How Long Can You Avail of the Loan Against Mutual Funds?
Normally, such loans are disbursed for a year. Afterward, the lender reviews your repayment and takes a call on whether to extend the facility or not. A timely repayment track will convince the lender to extend the facility.
Who is Eligible to Take a Loan Against Mutual Funds?
Both salaried and self-employed with a regular source of income can apply for the said loan type. At the same time, you should visit the website of lenders and see the list of approved mutual funds. If the list contains the mutual fund schemes you have, there’s no barrier to your loan application!