FAQs: Loans Against Mutual Funds on smallcase

Welcome to a comprehensive FAQs guide for Loan Against Mutual Funds on smallcase. As Loan Against Mutual Funds is our new offering, we understand you may have various questions – from its eligibility to its potential use cases. Rest assured, we’re here to provide you with the answers you’re looking for!

Getting Started with Loans Against Mutual Funds

1. What is a Loan Against Mutual Funds? 

• Loan Against Mutual Funds is a type of loan where you can borrow money by using your mutual fund investments as collateral.

2. How is it different from other loans?

• Unlike some loans that might require property or a steady income or a credit score as security, a loan against mutual funds uses your investments as collateral. Additionally, you only pay monthly interest on the borrowed amount, and you can choose when to repay the principal. 

3. How much loan can I take against my mutual fund investments? 

• The loan amount depends on the value of the mutual funds you will keep as collateral. You can avail a loan against mutual funds from ₹25,000 to ₹5 crore.

4. How long can I take the loan for? 

• The default tenure of the loan is 36 months.  

5. What will my monthly payments look like? 

• On a monthly basis, you only pay interest at the rate of 10.75% p.a. on the outstanding loan amount. For instance, if you have an outstanding loan of ₹1 lakh, your monthly payment would be (1 lakh) x (10.75/12)/100) = ₹895.

6. Can this loan be used as a credit line?

• Absolutely! Loan against mutual funds can be used as a credit line i.e. you can borrow and repay from a predetermined credit line multiple times without re-applying for a new loan each time you need cash.

7. How long will the application process and disbursement take?

• If you meet the loan eligibility criteria and have sufficient mutual fund holdings to avail a loan, the entire process from application to disbursement should be completed in 2 working hours.

8. How are my mutual funds impacted?

• After you avail a loan, your mutual funds will be pledged as collateral to the lender. You can continue to invest and earn returns/dividends, but you won’t be able to sell/redeem your mutual funds.

9. Does checking my credit limit affect my credit score?

• Your credit score is not impacted if you simply calculate your credit limit before availing of a loan against mutual funds on smallcase. Since the loan is dependent on your mutual fund investments, no third party is involved in reviewing your credit rating.

10. What is the process of taking LAMF?

• Import your mutual fund investments & select the mutual funds you want to use as collateral → Add a bank account for receiving funds and set up a mandate for monthly interest auto-debit → Pledge your mutual funds → Sign online loan agreement.

11. How can I repay the loan? 

• Visit the loan servicing dashboard click on the ‘Repay cash’ button, and enter the amount you want to repay. Remember, you can make the repayments at any time before the end of your loan tenure.

12. How can I close the loan?

• You can close your loan any time you want without any foreclosure or hidden charges. Head over to the help section of your loan dashboard or reach out to our support team to request loan closure.

13. Who is actually giving the loan? 

• Currently, Bajaj Finance Limited is offering the loan on the smallcase platform.

14. Is my data secure with smallcase?

• Yes, your data is completely secure. To know more about our privacy policy, click here.

15. Are my smallcase investments eligible for a loan? 

• No, currently only your non-demat mutual funds are eligible to avail a loan from the smallcase app or website.

16. What are the minimum and maximum required age for availing a loan against mutual fund?

• You should be between 18 years to 70 years of age.

17. Can I avail loan against mutual funds held in a joint account?

• Yes, you can avail of a loan against mutual funds which are held by joint holders. However, as a part of the loan application journey, a co-borrower form has to be signed physically, and the same has to be sent to the lender’s office for record-keeping purposes. We are working with a lender for a digital process in such a scenario.

Credit Limit Calculation

1. Which mutual funds are eligible for a loan?

• Only mutual funds held in non-demat form, i.e. only those funds held in the Statement of Accounts (SoA) or physical form can be used to take a loan. Moreover, your mutual funds need to belong to the list of eligible mutual funds prescribed by the lender.

2. How is the credit limit calculated?

• The credit limit is calculated by taking a percentage of the current market value of the mutual funds you wish to pledge. This percentage is 45% for equity MFs and 75% for debt MFs. 

3. What information is needed to calculate credit score? Will smallcase share my data?

• To calculate your credit score, we will need your PAN, phone number, and email address linked to your mutual fund holdings. Rest assured – smallcase doesn’t share user data with any third party so your data is completely secure.

4. Will checking the credit limit impact my CIBIL score? Is it a hard check?

• Checking your credit limit does not have any impact on your CIBIL score, however, it is a necessary step in order to determine your loan eligibility. 

5. Why are mutual funds held in demat form not eligible?

• All mutual funds companies in India work with either CAMS or KFin as their RTA (Registrar and Transfer Agents). The RTAs have the ability to mark lien against mutual funds held in non-demat form only. But if your mutual funds are in a demat form, another set of organisations called depositories (CDSL & NSDL) need to be involved to place the lien. We’re working on integrating these depositories soon to provide loans against demat mutual funds. 

6. Why are some of my funds not eligible for a loan?

• Some of your mutual funds may not be eligible for a loan if they: are held in Demat form, are tax-saver ELSS funds under a lock-in of 3 years, are already pledged, or are not part of the lender’s approved list of eligible funds.

7. I have mutual funds yet my eligible limit is being shown 0. Why?

• This could happen if: the total value of mutual funds is low, MFs are held in demat form or as tax saver ELSS funds under a lock-in of 3 years, MFs are already pledged, or MFs are not part of the lender’s approved list of eligible funds.

Application Process

1. What documents will be needed to apply for the loan?

• Applying for a loan against mutual funds is a completely digital and paperless process. You’ll need only your PAN (if you’ve never invested on the smallcase platform) and the phone number/email address linked to your mutual funds.

2. What are the steps of applying?

• Import your mutual fund investments & select the mutual funds you want to use as collateral → Add a bank account for receiving funds and set up a mandate for monthly interest auto-debit → Pledge your mutual funds → Sign online loan agreement.

3. What happens if I drop off from the application in between?

• If you drop off, you can resume your application from that point at any time. 

4. What are the terms and conditions of the application?

• Remember that your mutual funds will be pledged after availing of a loan, so you can’t sell/redeem such pledged mutual funds. The monthly interest on the outstanding loan amount will be auto-debited from the bank account you provide. Late payment interest and bounce charges are applicable in case of delay or failure of monthly interest payments.

5. What are some things to make sure of while applying?

• For accurate loan amount calculation, ensure that you are providing all email addresses or mobile numbers linked to your mutual funds, in case of multiple email IDs/ numbers.

6. What are the charges/processing fees?

Type of fee	Applicable charges
Interest rate	10.75% p.a.
Processing fee	₹999 or 1% of loan amount whichever is higher upto a maximum of ₹4999 (GST applicable) Example – loan less than 1 lakh: ₹999 + GST loan between 1 to 5 lakh: 1% of sanctioned amt + GST loan greater than 5 lakh: ₹4999 + GST
Late Payment Interest	Penal Interest is charged @ 2% per month
Bounce charges (for failed interest payment)	Rs 1200 per bounce
Part-prepayment charges	NIL
Foreclosure charges	NIL
Mandate inactive charges	NIL
Mandate verification (charged by your bank)	As charged by your bank (typically between Rs. 0 to Rs. 150)
Lien removal charges (if requested after taking loan)	NIL
Lien removal charges (if loan is canceled before disbursement)	Actual processing fee applicable
Collection/legal Charges (in case of default)	At actuals

Adding Mutual Fund Holdings to Check Loan Eligibility 

1. Why are my holdings being reimported?

• Your mutual fund holdings are being reimported to calculate the actual loan you would be eligible for if you decide to pledge them.

2. Which email address and phone number should I use to fetch holdings?

• To fetch mutual fund holdings serviced by CAMS, use the email address registered with your investment in the folio. For mutual funds serviced by KFin, enter the registered phone number. To check the email & phone numbers associated with your mutual fund investments, view your Consolidated Account Statement here.

 Loan Amount Confirmation

1. Why is my calculated credit limit different from earlier?

• The loan amount you might be eligible for may be lower than your previous credit limit if your mutual funds are:
  • Blacklisted by the lender/AMC
  • Currently pledged
  • In demat account
  • ELSS funds under a 3-year lock-in

2. Can I decide which mutual funds to pledge?

• Yes, you will get a list of mutual funds which are eligible for a loan and you can select the ones you want to pledge from this list. 

3. The units of some of my mutual funds are less than my actual holdings. Why?

• This can happen when some of your MF units are locked from selling for a certain period of time. For example, tax-saving funds have a lock-in period of 3 years. Such locked-in units cannot be used as collateral.

Linking Bank Account

1. Why do I have to link a bank account?

• Your linked bank account is used to receive approved loans and make hassle-free monthly interest payments through auto-debit and flexible repayments.

2. Why is e-mandate required?

• E-mandate is required for the auto-collection of interest on a monthly basis. This helps in incurring any penalties due to late monthly interest payments. 

3. Which banks are supported?

• All major banks are supported, to see the list visit here. 

4. I am getting an invalid IFSC error. What should I do?

• Confirm that you are entering the correct IFSC code. If that still does not work, please contact support, we’ll try to resolve your issue as soon as possible.

5. A white popup keeps loading while setting up e-mandate?

• You have to enable third-party cookies to set up the e-mandate. Go to the browser settings, enable third-party cookies, and retry the process. Once the mandate setup flow is complete, you may disable it.

6. I have set up a mandate but don’t want to take a loan. What to do?

• If you have set up a mandate but haven’t pledged mutual funds yet, you can simply close the process and cancel the e-mandate from your bank’s net banking portal. Your partial loan application will not be submitted to the lender.
  

Pledging Mutual Funds

1. What happens when I pledge mutual funds?

• The mutual funds are lien marked in the favour of the lender i.e. that they are kept as collateral with the lender.

2. Can I invest more/exit my mutual funds if pledged?

• Once the mutual funds are pledged, you cannot exit or sell such holdings until you close the loan but you can continue your regular investments.

3. When will my funds be unpledged?

• Once you repay any outstanding dues and close the loan, your mutual funds will be unpledged.

4. Does paying back the loan partially unpledge some mutual funds?

• Partial unpledging of mutual funds is currently not possible. You’ll have to repay all dues and close the loans to unpledge all the mutual funds in one go. We plan to provide partial unpledging of mutual funds soon. 

5. What are the tax implications of pledging?

• There will be no changes with respect to tax considerations for the pledged mutual funds. There would be a change of duration for calculating capital gains tax only if the mutual funds are unpledged and sold by the client, or if the mutual funds are confiscated by the lender.

6. My mutual funds got pledged but I don’t want to take a loan anymore.

• If you haven’t e-signed the loan agreement after pledging mutual funds, you can reach out to our dedicated customer support team to unpledge your investments. However, keep in mind that a minimal lien removal charge of Rs. 500 will be availed for the same.

Signing Agreement 

1. The screen is stuck at “Generating your Agreement” screen. What should I do?

• If the screen is stuck for longer than a couple of minutes, please contact the support team and we’ll assist you as soon as possible.

2. How do I sign the agreement?

• On the lender’s agreement screen, scroll to the bottom of the page and verify the OTP to sign the agreement.

Loan Disbursal

1. How long does it take for the amount to get disbursed?

• After the application process is completed, the loan amount will be disbursed to your bank account in a couple of hours. 

2. What happens post the loan application is submitted?

• Once you submit your loan application, the lender will verify the details. If everything is in order, your application will be approved, and you’ll receive the funds in 2 working hours.

3. It’s been more than the mentioned time and I haven’t received my loan yet. What to do?

• If your loan application is taking too long to process, please contact our support team and we’ll resolve your issue as soon as possible.

Managing Your Loan

1. Where can I manage my loan once active?

• You can go to the ‘More’ tab on the smallcase app to view the ‘Loan Dashboard’ and manage your repayments, withdrawals, etc. in one place.

2. How are my monthly dues deducted?

• Monthly interest payments will be auto-debited from the bank account on which you had set up the e-mandate.

3. How can I pay back the loan fully/partially?

• You have the flexibility to repay the loan at any time. Visit the ‘More’ tab on the smallcase app to view the Loan Dashboard and tap on the ‘Repay Cash’ button to pay back the loan. Choose the amount you want to repay and you’re done! 

4. How does withdrawal work?

• After you’ve repaid the entire or part of your principal, your credit line is restored and you can withdraw cash, starting from a minimum ₹1,000 up to the total amount of principal you’ve repaid i.e. you can get cash without applying for a new loan. Note that as you withdraw, there will be a monthly interest on the total withdrawn amount. 

5. What happens if I fail to pay my monthly instalments?

• If you miss an interest payment, you have to pay a bounce charge of Rs. 1200. A late interest payment of 2% per month will be charged on the due interest amount from the due date until the date of the next payment. 

6. What happens if the value of my mutual funds suddenly drops?

• The amount that you have withdrawn or the outstanding loan amount cannot be greater than 45% of the pledged equity MFs and 85% of the pledged debt MFs. Let’s say you’ve pledged equity funds worth Rs 1,000. So, you can borrow up to Rs 450 against your equity funds (45% of Rs 1000). Now, if the value of the equity MFs drops to Rs. 900, you’re only eligible for 45% of this amount as a loan which is Rs. 405. So, if your outstanding loan amount is Rs. 450, you’ll need to repay Rs. 45 to bring your loan back within the allowed levels.

7. What are the cases where my mutual funds can be liquidated?

• If the value of your pledged mutual funds falls and your outstanding loan amount becomes greater than the loan-to-value of the mutual funds, you have to repay a certain outstanding amount such that your loan-to-value comes back within allowed limits.
• If you’re not able to pay this amount in 7 days, the lender may recover this amount by liquidating your pledged MFs after notifying you. 
• In addition to this, your mutual funds may be liquidated if the total outstanding amount is not paid by the end of the 3-year loan tenure.

8. How can I close my loan?

• You can request for loan closure from the help section of your ‘Loan Dashboard’ or by reaching out to the support team. If there is no outstanding amount, your pledged mutual funds will be released and your loan account will be closed as soon as possible without any foreclosure or hidden charges. 

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We hope this guide was helpful in answering your queries regarding Loans Against Mutual Funds. If you have any concerns, questions, or feedback, please don’t hesitate to contact us via email at help@smallcase.com or chat with our support team.