How To Get A Loan On Mutual Fund?

Apart from being investment vehicles, mutual funds may serve as collateral for fast cash requirements.  You may borrow against your units to satisfy short-term financial demands rather than cashing them in during a market decline.  This is a step-by-step tutorial for obtaining a loan on mutual fund units in India.

A Loan Against Mutual Funds Is What?

A loan against mutual funds is a type of secured loan in which your mutual fund units are pledged as collateral.  This service is served by financial institutions and non-banking financial firms to enable you to get cash without liquidating your holdings.  The kind of mutual fund and its present Net Asset Value (NAV) determine the loan amount approved.

Who Is Eligible?

Should you have mutual funds, you may ask for a loan against them if:

• You are a Resident Indian individual investor.
• You own mutual fund units in your name, either in demat or physical form.
• You qualify for the lender’s minimal income and creditworthiness requirements.
• Lenders like debt mutual funds over both equity and debt mutual funds as they have less market risk.

How to Obtain a Loan on a Mutual Fund Step by Step

Select a Lender:

Begin by looking at many banks’ and NBFCs’ or via an instant loan app provided interest rates, processing fees, term, and loan-to-value (LTV) ratio.  Among well-known banks include HDFC Bank, ICICI Bank, Axis Bank, and Bajaj Finserv.

Eligibility and Paperwork Check:

Though they differ per lender, eligibility requirements usually include:

• Age (often between 21 and 65 years)
• Consistent income source
• KYC papers that are valid include PAN, Aadhaar.
• Maintaining mutual fund folios

The lender might also want a loan application form, bank statements, and evidence of mutual fund ownership.

Pledge Units of Pledge Mutual Fund

Your application approval will require you to pledge your mutual fund units as collateral.  The procedure is digital if your units are in demat form, held via NSDL/CDSL.  Your fund house has to verify the lien to the lender if kept in physical form.

The lender puts a lien—a legal claim—on the pledged units.  You cannot redeem them until the debt is paid back.

Loan Disbursement:

Usually, as an overdraft facility or term loan, the loan is issued upon successful lien marking.  The approved sum relies on:

• Kind of mutual fund
• LTV ratio—usually 50–70% for equity, 80–85% for debt funds
• Value of your assets

For instance, should your LTV ratio be 80% and you have ₹5 lakh in debt mutual funds, you may qualify for a loan of up to ₹4 lakh.

Main Advantages:

• Preserve your investment while still getting money.
• Usually less than personal loans or credit cards.
• Fast Processing: Particularly for demat account holders.

Things to Keep in Mind

• Should you default, the lender may sell your units to make up the outstanding balance.
• Changes in NAV might influence the LTV and could require you to commit further units.
• Not all mutual funds are approved by your lender.

Final thoughts:

A sensible approach to get liquidity without compromising long-term financial objectives is by borrowing against mutual fund units.  Proper planning and cautious payback can help you to maximize your assets even as you manage short-term financial requirements effectively.