Can mutual funds be used as collateral?
Yes, your Mutual Funds can be used as
collateral against loans. These loans are called loan against securities/ LoanAgainst Mutual Funds units (LAMF). You can borrow money for short period
instead of stopping Mutual Funds SIP or redeeming your Mutual Funds. You can
avail a loan against mutual funds from Public sector banks, Private Banks and
NBFC’s.
The interest would be around 10% - 13%
depending on the bank and type of fund pledged.
You can avail loan only against the
eligible Mutual Funds listed in the bank from which you are Borrowing. Banks
don’t lend for subscribing another scheme of Mutual Funds.
You should send a letter to the Mutual Fund/ Registrar requesting to mark a lien on units in favour of the financer. Lien
is a document that gives bank right of ownership to hold or sell funds. If you
default the loan, lender can evoke the lien and recover the dues.
Mutual fund units pledged with the bank
can’t be redeemed or switched, during the tenure of the loan, but the dividends
earned would be credited to your account.
The
amount of loan is linked to the Mutual Fund net asset value(NAV) and not to the face value. The extent of funding against
Mutual Funds is around 40%-50% of NAV.
Plan to tackle your day—and financial goals—with confidence. Invest in Mutual Funds at www.InstaEMI.com
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