People invest in mutual funds because they can provide long-term returns, asset diversification, and ease of use. However, mutual funds also provide liquidity in times of financial difficulty and good economies of scale in terms of lower transaction costs. You can increase the value of your current mutual fund assets by taking out a loan against mutual fund units (LAMF). If you have to take a loan, you can choose the option of taking a loan on your mutual funds. Read the article ahead to explore the steps of taking a loan against mutual funds.
Understanding Loans Against Mutual Funds
You can borrow funds against your mutual fund units without having to sell them by using a loan against mutual funds, or LAMF. A loan secured against mutual funds functions as an overdraft facility, allowing you to borrow and repay funds whenever it's convenient for you. Interest is only assessed on the amount and duration of use.
There are several mutual funds available from leading asset management companies (AMCs) in India. You can get a loan that will help you manage your short- or medium-term financial demands by using CAMS or KFintech (previously KARVY) to lien mark your mutual funds as collateral.
How to Avail Loans Against Mutual Funds?
Follow the below steps to get a loan on mutual fund:
Step 1: Download the app or apply through an online website.
Step 2: Choose a mutual fund type, such as debt or equity mutual funds.
Step 3: Finish the one-time KYC registration process using your PAN and Aadhaar information (if your Aadhaar is connected to your mobile number, you can retrieve the information straight from Digilocker).
Step 4: Lien mark using One-Time Password (OTP) authentication at RTA's (CAMS / KFintech) portal
Step 5: Use e-mandate to verify your bank account online.
Step 6: Examine and sign the loan contract online.
Advantages of Taking a Loan Against Mutual Funds
The advantages of taking a loan against mutual funds:
1. You Receive a Lower Interest Rate
Compared to personal loans, loans secured by mutual funds frequently offer lower interest rates. It has a lower interest rate than unsecured loans because it is a secured loan.
2. You Do Not Need to Redeem Your Mutual Fund
To obtain loans against their mutual fund, investors are not required to redeem their plan. As the units are pledged as collateral for loans rather than being sold, investors can obtain loans without giving up ownership.
3. A Source of Short-Term Capital Needs
When funds are required for immediate needs, loans secured by mutual funds may be advantageous. Investment fund units allow you to raise funds for a short period and pay them back gradually without risking scheme ownership.
Conclusion
Customers who have mutual fund units can obtain instant liquidity by taking out a loan against their funds. This loan has a shorter term than other loans and is effectively an overdraft facility for short-term financial needs. You can borrow against your mutual funds for quick access to funds while preserving your investment for future growth. You can check platforms like Fibe to avail any kind of loan for financial needs. Platforms like these are reliable and secure for loans.
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