We all often find ourselves in an emergency where we urgently need funds. When we face such a situation, the first thought we have in mind is to redeem our investments. But what if, at that point, the investments are performing poorly, and you won’t get a lot out of these assets? We often consider taking a loan or using a credit card. But these are all unsecured loans, which means higher interest rates will be paid later. But what if we tell you that you can use your mutual funds for the money?
Yes, you can take a loan on mutual funds by using your mutual fund as collateral for the loan?
Introducing ‘ ‘loan against mutual funds,’’ a way for you to get instant cash when you use your mutual funds as collateral for a loan. This seems like something new and unheard off but we must tell you, this is quite popular among investors when they need a loan.
You might be thinking that you stand to lose your mutual funds in the process, then why should we opt for this option, well that’s a misconception. With loans against mutual funds, you can receive the return on your mutual funds as long as you don’t default on your loan payments. And it doesn’t stop there; taking a loan against mutual funds has many other benefits that might help you. But before we get into how you can get instant cash with your mutual funds, let’s understand what exactly mutual funds are.
What are mutual funds?
Mutual funds are an investment tool that combines large sums of money from different mutual fund investors in a single pot. The investor’s money is then taken to invest in different financial securities such as bonds, stocks, gold, shares and others. Moreover, mutual funds are run by professionals who allocate the investors money. This in turn generates revenue and or capital gain. With this the stakeholder also has an equal role to play when it comes to the profits and losses endured by the stock.
What is a loan against mutual funds?
So what getting a loan against mutual funds essentially means is the bank will use the stocks that you have invested in as a collateral to ensure that you pay your loan money on time. Once you have paid your loan money you will get your mutual funds back. But what is great about a loan against mutual funds is that even while it is on collateral, the mutual funds are not frozen so you will still get your returns on it. A point to be noted here is that the bank compares mutual funds and will decide which mutual fund will be used as a collateral for the investments.
Many investors prefer taking a loan against mutual funds for this very reason. You get both instant cash in exchange for your mutual fund. But apart from this, there are many other reasons why mutual funds against loans are so popular among investors.
So, let’s take a look at why investors choose mutual funds against loans as a loan option:
- Interest rates:
When you get a loan against mutual funds, you get a lower interest rate compared to other loans like a personal loan. The loan against mutual funds interest rates is low because this loan is a secured loan. However, the interest rate depends on the financial institution that is providing you the loan. For example, Yenmo provides you with a low interest rate of 10.5% on your loan against mutual funds.
- Quick cash:
When you get a loan against mutual funds, you can get the money instantly. This is especially useful during an emergency. You can do this by pledging the funds unit online and getting the money into your account. This process is made faster since you are already an investor, which means there will be fewer documents required and a minimal eligibility requirement.
- Continued interest on your investments:
One of the biggest benefits of taking a loan against your mutual funds is that your mutual funds against benefits still stay invested even after you have kept it as collateral for the loan. This allows you to continue earning returns during the loan tenure. However, you have to pay your loan amount on time; otherwise, the financial institution will sell your mutual funds when you default. So, with loans against mutual funds, you get the dual benefits of getting cash during an emergency and, at the same time, having the power of compounding work in your favor.
- Online Application:
Many of the financial institutes that provide these mutual funds now function online. So, the entire application process for applying for the loan is online. In order to apply for the loan, you need to fill out the application form along with digital copies of applicable Know You Customer (KYC) documents and submit it to get the loan approval. And with Yenmo, in order to get the loan approved, your CIBIL score is not checked, either, making the process simpler.
- A source for short-term capital needs:
Getting a loan against Mutual Funds can be beneficial when you need the money for a short period. You can raise cash from your investment fund units for a short period and repay it gradually without jeopardizing scheme ownership.
In conclusion, loans against mutual funds offer a solution for investors who need quick access to funds without sacrificing their investments. By pledging your mutual funds, you can get the loan approved at a lower interest rate, allowing you to get a loan without incurring high costs. The continued earning potential of your mutual funds, along with the ease of online application and quick disbursement, makes this option highly convenient. Whether it’s for short-term capital needs or during financial emergencies, leveraging your mutual funds for a loan provides flexibility, ensuring that your investments continue to work for you.
