Personal finance simplified

How to get loan against your mutual fund units?

Advantage of borrowing through Mutual funds and How to apply for MF loan?

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Did you know? You can easily avail loan against your mutual fund units from Banks and Non-Banking Finance Company (NBFC). You can avail this loan from SBI, ICICI, Tata capital, HDFC, IDBI, Kodak Mahindra Bank, Aditya Birla Finance and others. Some lenders have limits on the minimum and maximum loan amount against mutual funds.

How to get loan against your mutual fund units

If you are looking for money for a short tenure, consider borrowing against your mutual fund units as the interest rate is lower than a personal loan.

How to get loan against your mutual fund units?

Once you approach for a loan against your mutual fund units, lenders would consider your loan request after seeking a lien on the MF units. Lien is a document that gives the Bank/NBFC the ownership right to hold or sell your mutual funds. The lien request letter should be signed by all unit holders if the mutual fund is jointly held. The Bank or NBFC will write to the mutual fund registrar and ask them to mark a lien on certain number of units that are being pledged for the loan.

MF loan amount eligibility

The loan will be offered depending on the units held in the mutual fund folio. Usually, you would get around 50-70% of the mutual fund value. 

Remember, not all mutual funds types are eligible for a loan. Most of the banks consider loan against hybrid or equity mutual fund units. Check whether your mutual fund is approved by the lender for loan or not. 

When the units are under loan, you cannot sell or switch the units but you can continue to receive MF dividends.

MF loan defaults rules

In case, if you default on your loan, the financier can enforce the lien and request the mutual fund to redeem your units and send the money for loan repayment.

Once you repay the entire loan, the financier will lift the lien and you get back the ownership right of your mutual fund units.

Advantage of borrowing through Mutual funds

Loan against your MF gives the option of receiving immediate money against the mutual fund units that you own. Many borrowers in India are still not aware of loan option against mutual funds. So next time, if you are looking money for an emergency, remember that you can avail loan against your mutual fund and it can be a better option than some of the traditional loans.

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1 Comment
  1. Suman Dahal says

    Nice one. Thanks for the information