How to take a loan against mutual funds online?

What is a loan against mutual funds?

So much so that, in case of financial need, the first idea that may come to mind is liquidating mutual funds. But what if we told you that you can meet your cash needs without selling your investments?

Mutual funds do more than generate returns. They let you avail loans to fulfil financial requirements. If you have investments in mutual funds, you can use them as collateral to secure a loan. This way, you do not have to sell your mutual fund holdings, and thus, you can preserve your funds’ potential growth.

Different types of mutual funds, such as equity, debt, or hybrid funds, can be pledged. The type of fund you are pledging greatly determines the loan amount you will receive. The loan-to-value can typically range from 50% to 80% of the value of the mutual funds pledged. While some lenders allow almost 60% to 80% of the Net Asset Value (NAV) of debt funds, in the case of equities, the loan amount may be limited to 50% of the fund value.

LAMF is also known as an OD against mutual funds, since the loan is provided as an overdraft or a term loan. The best part? Interest is charged only on the amount you utilise, not on the full sanctioned limit.

Note: The lender, whether a bank or an NBFC, typically maintains an approved list of mutual fund schemes for pledging. While LAMF is a secured borrowing, some lenders may consider your CIBIL score when determining the loan against mutual fund interest rates. Make sure you check all these details before applying for a loan.

Eligibility criteria for loan against mutual funds

Securing a loan against mutual funds requires the applicant to fulfil basic eligibility criteria. These include:

• Residential Status: Typically, lenders provide LAMF only to Indian residents. Some lenders may also extend loans against mutual funds to NRIs (Non-Resident Indians). Check the criteria with your chosen lender.
• Age: The applicant must be 18 to 75 years old or older. In some cases, the lender’s age criteria for LAMF may slightly vary.
• MF Ownership: Since the units are pledged, the mutual funds must be registered in your name. They can be in Demat or non-Demat form.

Note: Typically, applicants can pledge only mutual funds issued by SEBI-approved AMCs (Asset Management Companies). Some lenders may also require a minimum MF portfolio value.

Documents required for loan against mutual funds

As a retail investor with proper KYC compliance, applying for the LAMF can mostly be a 100% digital process. However, when applying for a loan against mutual funds, the applicant should keep the supporting documents handy. Common requirements include:

• Loan application form
• KYC documents (Passport, PAN card, Voter ID, Aadhaar card)
• Income Proof (ITR, Salary slips, bank statements)
• A statement of the mutual funds

Advantages of loan against mutual funds

Loan against mutual funds means you don't have to compromise your MF portfolio in times of need. Take a look at the advantages of LAMF:

• Quick disbursal without selling funds: Since the loan is secured against mutual fund units, lenders verify and process applications quickly. Funds are disbursed without the delays typically seen in unsecured loans.
• Lower interest compared to personal loans: Compared to unsecured loans, loan against mutual fund interest rates are typically lower. That's mostly because OD against mutual funds are secured loans.
• Simple, paperless process: Most ODs against mutual funds require minimal to no paperwork. However, if KYC is pending, some documentation may still be required.
• No impact on mutual fund performance or ownership: While your mutual fund units are pledged for a loan, it does not affect the mutual fund's performance or ownership. The investment continues earning interest or dividends even when the MF has a lien marking.

Lien marking:Lien marking means that the ownership of the MF remains with you, the applicant. Only the selling or transferring of the funds is restricted until the loan is closed.

Step-by-step process to apply for a loan against mutual funds online

You may apply for a loan or OD against mutual funds either by visiting a nearby lender's office or through online platforms. To apply online, you need to follow the steps given below:

1. Step 1: Choose the right lender or platform: In India, various banks and NBFCs (Non-banking Financial Companies) offer loans against mutual funds. So, the first step is to choose the right lender or the platform for LAMF.
   
   Compare the interest rates charged, processing fees, lending history, market reputation, and online testimonials. It helps you understand how a lender processes applications and choose the most suitable one.
2. Step 2: Log in to the platform or app: Once you have chosen your lender, log in to their official website or mobile application. Create an account or log in if you're an existing customer.
3. Step 3: Select mutual funds to pledge: Choose the LAMF option, then select the MFs you want to pledge. You may need to enter details such as folio numbers and scheme names. The lender will then verify the MF.
4. Step 4: Authorise pledge via NSDL/RTAs: During MF pledging, the lender performs lien marking. Authorising a pledge via RTA or NSDL means the applicant must provide the lender with digital permission for lien marking.
5. Step 5: Complete KYC & documentation: If KYC (Know Your Customer) or other documentation has not been completed before, the applicant must complete these steps before approval.
6. Step 6: Loan sanction and disbursal: Once verified, the lender sanctions and disburses the loan. LAMF is typically provided as an overdraft facility. So, interest will be charged only on the used amount.

Conclusion

When it comes to popular investment options, mutual funds lead the way. It is a go-to option for a variety of investors. In case of a financial crunch, your well-stocked portfolio can also come to your rescue.

With JioFinance, you can leverage your mutual funds and get a loan in just 10 minutes. Without bringing your growing portfolio to a halt, you can now get the funds you need with a completely digital application and processing, making the entire process convenient and streamlined.

Taking a LAMF with JioFinance is an affordable option, as it offers competitive interest rates and no prepayment charges. Make sure to use an online calculator to get a fair estimate of how the loan will affect your budget. For better clarity, you can also get in touch with a financial advisor and bring stability and confidence to your investment decisions.