Loan Against MF
A loan against mutual funds (LAMF) is a financial arrangement that lets investors use their mutual funds as collateral to get a loan from a lender or financial institution. This type of loan is also known as a loan against security (LAS).
The process is similar to the overdraft facility that bank accounts offer. You can avail loan against equity or hybrid mutual funds by approaching any non-banking financial company (NBFC) or bank. For the bank to consider your loan request, you need to pledge your mutual fund units as security for the debt
Here are some things to know about LAMFs:
- How it works
The lender sets a borrowing limit based on the value of the mutual fund units pledged as collateral. The borrower can then use the funds as an overdraft facility.
- Benefits
LAMFs can be beneficial because they provide liquidity without requiring the investor to redeem their mutual funds. This can be especially helpful during market volatility when selling mutual funds at unfavorable prices might not be ideal.
- Interest rates
The interest rate and amount may vary depending on the type of mutual fund and the company.
- Eligibility
Eligibility conditions may include age, having a valid email address and mobile number, and being an individual customer.
- RepaymentInterest is usually collected automatically on a set date, such as the 3rd of the month. The borrower will receive a notification on the 1st of the month to ensure they have enough funds in their account.