Loan on Mutual Fund: Need money in times of crisis? Mutual fund loan is an option
By Lokmat English Desk | Updated: December 16, 2022 14:00 IST2022-12-16T14:00:00+5:302022-12-16T14:00:00+5:30
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Investing in mutual funds is an investment for medium to long term goals. But in case of sudden need of money, many people redeem this investment before maturity. That is, they take away.
Therefore, the objectives of the investors are affected. Instead of redeeming the investment, investors can borrow against the mutual fund. It keeps the investment safe and fulfills the urgent need of the investor.
Non-Resident Indians, Institutions, Undivided Hindu Families, Trusts, Companies and any organization are eligible to avail loan on Mutual Fund Unit. Minors cannot get loans. Banks and financial institutions decide the loan amount, duration and interest rate.
How much loan you can get on a mutual fund depends on the type of fund. If you have an 'equity fund' you can get a loan of 50% of its net asset value. In case of 'Fixed Income Fund' 70 to 80 percent of its net asset value should be borrowed.
You have to apply for a loan in a bank or financial institution. Many financial companies offer online application facility. All loan procedures can be completed online and approval can also be obtained online. Interestingly, the mortgage process.
The interest rate on mutual fund loans is much lower than the interest rate on personal loans. Because there is salvation in it. Banks or financial institutions have no fear of default. The processing fee for taking a loan is either nominal or often waived.
If certain loans are repaid, the mutual fund units are de-mortgaged to the extent of the repayment. Dividends and other benefits continue to accrue on the units despite the mortgage. The pledged units are not redeemable by the investor.
