A loan against mutual funds is a secured loan where you pledge your existing mutual fund units as collateral to borrow money. This type of loan allows you to access funds without having to liquidate your investments, ensuring your long-term financial goals remain on track. It's a convenient option for those needing quick access to cash for various needs, such as emergencies, business opportunities, or planned expenses, while continuing to benefit from potential market appreciation of their mutual fund portfolio.
Types of loans available
Various types of loans cater to different financial needs, offering individuals and businesses the flexibility to manage their expenses, investments, and growth. Each loan type has unique features, eligibility criteria, and benefits designed to meet specific requirements.
- Personal loans: Unsecured loans for personal use such as medical expenses, travel, or home renovations.
- Home loans: Secured loans for purchasing or constructing a home.
- Auto loans: Loans for purchasing vehicles, typically secured by the vehicle itself.
- Education loans: Loans designed to cover educational expenses, often with flexible repayment terms.
- Business loans: Loans to finance business activities, either secured or unsecured.
- Loan against mutual funds: Secured loans where mutual funds are pledged as collateral.
Eligibility criteria
Eligibility criteria for loans vary based on the type of loan, lender policies, and the applicant's financial profile. Meeting these criteria ensures that applicants are capable of repaying the loan, minimising the risk for lenders.
The factors for loan against mutual funds eligibility include:
- Minimum age: Usually 18 to 21 years.
- Maximum age: Typically ranging from 60 to 90 years.
- Ownership of mutual funds: Must hold mutual funds in approved schemes.
- Credit score: A good credit score increases eligibility.
- Income proof: Regular income or proof of stable financial status.
Loan against mutual funds vs other types of loans
A loan against mutual funds is a secured loan where mutual fund units are pledged as collateral. This type of loan offers several advantages over other types of loans. For instance, it usually comes with lower interest rates compared to personal loans due to the secured nature of the loan. Additionally, the loan amount can be higher based on the value of the mutual fund units. However, it requires that you hold mutual funds, which might not be the case for everyone.
In contrast, personal loans are unsecured and have higher interest rates but do not require any collateral. Home and auto loans are specific-purpose loans and are secured against the property or vehicle being financed. Business loans can be either secured or unsecured, depending on the lender’s terms and the borrower’s financial profile.
Loan amount and interest rates
The loan amount and interest rates depend on various factors such as the type of loan, the borrower's creditworthiness, and the collateral offered. Understanding these factors helps in selecting the most suitable loan option and managing repayment effectively.
Loan type |
Loan amount |
Interest rates |
Personal loans |
Up to Rs. 25 lakhs |
10% to 24% |
Home loans |
Up to 90% of property value |
7% to 9% |
Auto loans |
Up to 100% of on-road price |
8% to 15% |
Education loans |
Up to Rs. 20 lakhs |
9% to 15% |
Business loans |
Up to Rs. 50 lakhs or more |
12% to 20% |
Up to 90% of NAV of funds |
9% to 20% |
Step-by-step application process
The application process for loans involves several steps to ensure that the borrower meets the eligibility criteria and can repay the loan. This process typically includes document submission, verification, and approval.
- Apply: Click the "Apply" button in Loan Against Mutual Funds page
- Personal details: Enter your name, PAN, date of birth, and other required personal information.
- Email verification: Provide and verify your email address.
- Portfolio retrieval: We'll use your mobile number to access your mutual fund portfolio details from CAMS and KFintech.
- Fund selection: Choose the mutual funds you wish to pledge as collateral and specify the number of units for each. This will generate a loan offer.
- Loan offer: We'll present a loan offer based on your eligibility. You can accept it or modify it.
- Lien marking: Complete the lien marking process by entering the OTP sent to your registered mobile number.
- KYC & bank verification: Finish the KYC process and verify your bank account details to receive your loan sanction letter.
- Agreement & consent: Accept the loan agreement and provide your consent for loan sanction and disbursement.
- Disbursement: After verification, the loan amount will be credited to your bank account.
Required documents
- PAN card
- KYC documents: Aadhaar/ passport/ voter’s ID/ driving license/ Letter of National Population Register/ NREGA job card
- Consolidated Account Statement
Repayment terms
Repayment terms for loans outline the duration, frequency, and mode of repayment. These terms are crucial for borrowers to understand, as they impact the overall cost of the loan and financial planning.
- Tenure: Loan tenures can range from a few months to several years, depending on the loan type.
- EMI amount: Equated Monthly Instalments (EMIs) are calculated based on the loan amount, interest rate, and tenure.
- Repayment frequency: Typically monthly, but some loans may offer quarterly or annual repayment options.
Advantages and disadvantages
Advantages:
- Lower interest rates (for secured loans).
- Higher loan amounts available.
- Flexibility in usage (for personal and business loans).
- Tax benefits (for home loans and education loans).
Disadvantages:
- Risk of losing collateral (for secured loans).
- Higher interest rates (for unsecured loans).
- Stringent eligibility criteria.
- Long approval processes (for some loans).
Conclusion
Choosing the right type of loan requires careful consideration of your financial needs, eligibility, and the terms offered by lenders. Understanding the various types of loans, their eligibility criteria, loan amounts, and interest rates can help you make an informed decision. Whether you are looking for a loan against mutual funds, a personal loan, or a home loan, it’s essential to compare the options and select the one that best fits your financial situation and goals. Proper planning and understanding of the application process, repayment terms, and potential risks will ensure that you manage your loan effectively and maintain financial stability.
