Money requirement will be fulfilled without breaking SIP! You can get loan on mutual funds in a jiffy, know the complete process. You can meet your financial needs without breaking your SIP (Systematic Investment Plan)! Get a mutual fund loan in no time! Learn the complete process.

People investing in the stock market, SIP or mutual funds are often confused whether it is right to break their long-term investments in case of sudden need of money? If you also want to meet the urgent need of money without damaging the investments made for your future goals, then ‘Loan Against Mutual Fund’ can prove to be a great and safe option for you. Today, many major banks and non-banking financial companies (NBFCs) of the country are providing easy loan facilities to investors against their mutual fund units.

What is Loan Against Mutual Fund and how does it work?

Loan against mutual fund is basically a secured loan, in which you do not need to sell your invested units at all. In this process, banks or financial institutions put a kind of ‘Lien’ i.e. legal rights or temporary ban on your mutual fund units. In simple words, you pledge your mutual fund investment with the bank and get a cash loan in return for it. As soon as you repay the entire loan and interest to the bank, the lien on the units is removed and you regain complete control over your investment.

How much loan amount is available on equity and debt funds?

The amount of loan you can get against your investment depends entirely on the type of fund you have invested in. For this, banks decide ‘LTV’ (Loan to Value) i.e. loan-to-value ratio:

• Equity Mutual Fund: If you have invested ₹ 10 lakh in an equity mutual fund and the LTV limit of the bank is 60 percent, then you can get a loan of up to ₹ 6 lakh against this investment.

• Debt Mutual Fund: Due to lower risk in debt funds, banks offer higher LTV i.e. a limit of up to 80 percent. In such a situation, you can easily get a loan of up to ₹ 8 lakh on a debt investment of ₹ 10 lakh.

How to apply for loan and what is the process?

If you want to take a loan against your mutual fund portfolio, you can apply online through the official website of the concerned bank or NBFC or offline by visiting their nearest branch. For this, you will have to complete your KYC process, share complete information about your mutual fund holdings and complete the lien process prescribed by the bank. After verification and completion of all formalities, the loan amount is transferred directly to your bank account.

Main benefits of taking loan against mutual funds

The biggest advantage of this financial option is that you do not have to break your long-running SIP or investment to meet your long-term financial goals. This maintains the power of compounding in your market and also does not affect your habit of continuously investing. Additionally, funds are available quickly when needed, with less paperwork, and in many cases, interest rates are lower than personal loans.