Mutual funds are among the most favoured investments. However, did you know that they can also be utilised to obtain a loan? In case you do not wish to liquidate your mutual funds during an emergency situation, you can opt for a loan against MF instead.
Let’s learn the process, along with the advantages and disadvantages.
What is a Loan Against MF?
A loan against MF is a way to borrow money using your mutual fund units as security. You don’t have to break or sell your investment. Instead, the lender holds your units until the loan is repaid.
You still remain the owner of the funds, but you can’t redeem them while the loan is active. Once you repay the loan, the units are released.
This is a good option when you need urgent money but want to keep your investment intact.
Pros of a Loan Against MF
Quick Access to Funds
You can get money faster than with a regular loan. Many lenders now process this loan online. If you use an instant cash loan app, you can get the money in just a few hours.
No Need to Sell Investments
Market down? No problem. You don’t have to sell your mutual funds at a low value. You keep your investment and still get the cash you need.
Lower Interest Rates
Since this is a secured loan, the interest rate is lower than a personal loan. That means your EMI is lighter.
Flexible Repayment
Most lenders allow flexible repayment options. You can repay in parts or in full, depending on what suits you best.
No Credit Impact
If you have a low credit score, you may still qualify. The loan is based on your mutual fund value, not just your credit history.
Cons of Loan Against MF
Limited Loan Amount
You won’t get the full value of your investment. Most lenders offer only 50% to 70% of the mutual fund’s worth. That might not be enough in some emergencies.
Risk if Market Falls
If the value of your mutual fund drops, the lender may ask for more security. This is called a margin call. If you can’t provide it, your units may be sold.
Funds Get Locked
You can’t redeem or switch your mutual fund units until the loan is cleared. That limits your investment flexibility.
Not All MFs Are Accepted
Only certain mutual funds are accepted for loans. Liquid and debt funds are usually preferred. Some lenders may not accept equity funds at all.
Should You Use an Instant Cash Loan App?
If your lender allows online processing, using an instant cash loan app can save time. These apps offer paperless steps and real-time status updates. They are great if you want fast service without going to a bank.
Just make sure the app is trusted and secure. Always check the terms before you agree.
Final Thoughts
A loan against MF is a smart option when you need money but don’t want to sell your investments. It offers quick access, lower interest, and flexible terms. But like any loan, it comes with risks.
Know your needs. Compare options. And choose what works best for you.
