Why Choose Sulekha?
Sulekha is your go-to platform for finding a wide variety of loan providers catering to diverse financial needs such as personal loans, loans against mutual funds, home loans, vehicle loans, car loans, education loans, and more. With Sulekha, you gain access to a comprehensive network of reputable lenders, ensuring you find the perfect match for your specific requirements. The platform simplifies your search process, saving you time and effort by connecting you with trusted professionals who can offer tailored loan solutions. Choose Sulekha for a seamless and efficient loan-seeking experience.
1. When to Consider Taking Out a Loan Against Mutual Funds?
- Emergency Financial Needs: Taking a loan against mutual funds is useful for unforeseen expenses like medical emergencies or urgent repairs, providing quick liquidity without selling your investments. It can also address short-term cash flow issues, bridging financial gaps until future income covers the expenses.
- Lower Interest Rates: These loans usually come with lower interest rates compared to personal loans or credit card debt since they are secured by your investments. This makes borrowing against mutual funds a more cost-effective option if you need funds while minimizing interest costs.
- Investment Opportunities: If you identify lucrative investment opportunities requiring quick capital, borrowing against mutual funds allows you to seize these without disturbing your current investments. This strategy is also helpful during market dips, enabling you to invest more without liquidating existing assets.
- Tax Planning: Borrowing against mutual funds helps avoid capital gains tax that selling investments would trigger. Additionally, if the borrowed funds are used for business or investment purposes, the interest paid might be tax-deductible, providing further financial benefits.
- Maintaining Investment Goals: This loan option supports long-term financial goals like retirement or education by maintaining your investment trajectory while meeting immediate financial needs. By not selling your mutual funds, you avoid missing out on potential market recoveries and growth.
- Convenience and Flexibility: Many financial institutions offer streamlined processes for these loans, making them a convenient choice for quick access to funds. They often come with flexible repayment terms, allowing you to manage your cash flow effectively while leveraging your investments.
- Key Considerations: Understand the loan-to-value ratio offered by the lender, typically ranging between 50% to 70% of the mutual fund's value. Consider the risks of market volatility affecting your mutual funds' value and ensure you can repay the loan without compromising financial stability. Explore other financing options to ensure this is the most suitable and cost-effective choice for your needs.
2. Eligibility Criteria for Taking a Loan Against Mutual Funds?
- Age: Applicants must be at least 18 years old, with some institutions requiring a minimum age of 21. The maximum age at loan maturity is generally 60-65 years for salaried individuals and up to 70 years for self-employed individuals.
- Ownership of Mutual Funds: The mutual funds must be in the applicant's name. Joint holders may apply, but all holders often need to be co-applicants.
- Type of Mutual Funds: Both equity and debt mutual funds are accepted, though the specific schemes eligible for pledging can vary by lender.
- Fund House Approval: The mutual funds must come from fund houses approved by the lending institution.
- KYC Compliance: Applicants must be KYC compliant, providing valid proof of identity, address, and sometimes income.
- Credit History: While not always stringent, a good credit history enhances loan approval chances and may secure better terms.
- Minimum Value of Mutual Funds: There is usually a minimum value requirement for the mutual fund portfolio to be pledged, typically starting from a few lakhs.
- Residential Status: Applicants must generally be Indian residents, though NRIs may have different criteria and terms.
- Employment Status: Both salaried and self-employed individuals are eligible, with some lenders preferring stable employment history or specific income levels.
- Documentation Required: Applicants need to provide a filled loan application form, KYC documents (identity and address proof), proof of mutual fund holdings, and income proof such as salary slips or IT returns.
- Loan Amount and Terms: The loan amount usually depends on the mutual fund value, typically around 50-80% of the NAV, with interest rates and loan tenure varying based on the applicant's credit profile and mutual fund type.
3. What are the Benefits and Advantages of a Loan Against Mutual Funds?
- Quick Access to Funds: Loans against mutual funds are processed quickly due to the ease of liquidating mutual fund assets, providing immediate liquidity without the need to sell the units.
- Retaining Investment Benefits: Investors continue to earn returns on their mutual fund investments as the units remain in the market, avoiding tax implications and exit loads from selling the units.
- Lower Interest Rates: As a secured loan, loans against mutual funds typically offer lower interest rates compared to unsecured loans like personal loans or credit cards, making it a cost-effective financing option.
- Flexible Loan Amount: The loan amount is determined based on the Net Asset Value (NAV) of the mutual fund holdings, allowing for flexibility in borrowing according to the portfolio's value and needs.
- Easy Repayment Options: LAMF offers flexible repayment tenures and often allows for prepayment without penalties, providing borrowers with convenient and manageable repayment terms.
- No Impact on Credit Score: Since the loan is secured by mutual fund units, it does not negatively impact the borrower’s credit score, provided the loan is serviced on time.
- Cost-Effective: Loans against mutual funds generally come with minimal processing fees and no hidden charges, making them a cost-effective solution for accessing funds.
- Simple Documentation: The documentation process for LAMF is straightforward, typically requiring proof of mutual fund holdings and basic KYC documents, making it hassle-free.
- Diversification of Financial Strategy: Investors can leverage their mutual fund investments to meet short-term liquidity needs without disrupting their long-term investment strategy, providing financial flexibility.
- Tax Efficiency: Since the borrowed amount is a loan and not a withdrawal from mutual funds, there are no tax implications, making it a tax-efficient way to access funds.
4. Important Factors to Consider When Taking a Loan Against Mutual Funds?
- Eligibility and Loan Amount: Check if you meet the lender's eligibility criteria, which usually includes factors like age, income, and credit score. The loan amount is typically a percentage of the mutual fund's net asset value (NAV), usually up to 50-70%.
- Interest Rate: Understand whether the interest rate is fixed or floating, as fixed rates remain constant while floating rates can change with the market. Compare interest rates from different lenders to ensure you get the best deal.
- Loan Tenure: Decide on a loan tenure that suits your financial situation. Shorter tenures have higher EMIs but lower total interest, while longer tenures reduce EMI burden but increase overall interest cost. Ensure the lender offers flexible repayment options.
- Charges and Fees: Be aware of the various charges such as processing fees, legal fees, and administrative costs. Knowing these upfront helps avoid unexpected expenses.
- Loan to Value (LTV) Ratio: Understand the LTV ratio, which is the loan amount compared to the value of your mutual funds. A higher LTV ratio allows borrowing more but increases risk, especially if the NAV drops.
- Impact on Investments: Consider the potential fluctuations in your mutual fund's NAV, which can affect your loan and lead to margin calls. Evaluate the long-term growth potential of your investments before taking a loan.
- Repayment Terms: Understand the EMI structure and how it fits into your budget. Check for any prepayment penalties and if partial prepayments are allowed to manage your repayments better.
- Tax Implications: Loans against mutual funds do not offer tax benefits like home loans. It’s important to understand the tax implications on your investments.
- Risk Management: Ensure that taking a loan doesn't overly concentrate your risk in one financial instrument. Maintain a separate emergency fund to cover unexpected expenses.
- Purpose of Loan: Clearly define the purpose of the loan. Using the loan for productive purposes like business expansion or education can be more justified than using it for consumption.
- Documentation and Process: Prepare necessary documents such as proof of identity, address, income, and mutual fund statements. Understand the loan application and approval process, including the disbursement timeline.
5. Loan Against Mutual Funds Interest Rates?
| Bank Name |
Interest Rate |
Processing Fees |
Loan Amount |
Tenure |
| HDFC Bank |
10.50% - 12.50% |
Up to 1% of the loan amount |
₹1 lakh - ₹10 crores |
Up to 36 months |
| ICICI Bank |
9.50% - 11.50% |
0.50% of the loan amount |
₹1 lakh - ₹20 crores |
Up to 48 months |
| Axis Bank |
10.75% - 12.75% |
0.25% of the loan amount |
₹50,000 - ₹5 crores |
Up to 36 months |
| Kotak Mahindra Bank |
9.25% - 10.50% |
0.25% - 1% of the loan amount |
₹1 lakh - ₹3 crores |
Up to 36 months |
| SBI (State Bank of India) |
9.75% - 10.75% |
0.35% of the loan amount |
₹50,000 - ₹10 crores |
Up to 48 months |
| Punjab National Bank |
10.00% - 11.50% |
0.50% of the loan amount |
₹50,000 - ₹5 crores |
Up to 36 months |
| Bank of Baroda |
9.90% - 11.90% |
0.25% of the loan amount |
₹1 lakh - ₹5 crores |
Up to 36 months |
| IDFC First Bank |
10.00% - 12.00% |
0.75% of the loan amount |
₹1 lakh - ₹3 crores |
Up to 36 months |
| IndusInd Bank |
10.25% - 12.25% |
0.50% of the loan amount |
₹1 lakh - ₹10 crores |
Up to 36 months |
Please note: Interest rates and fees can vary based on the loan amount, tenure, credit profile of the borrower, and specific bank policies. It is advisable to check with the respective bank for the most accurate and updated information.
