Know These 6 Things Before Applying for a Loan Against Mutual Funds (LAMF)
A loan against mutual funds is a type of Loan Against Securities (LAS). This is a loan that holds the borrowers’ mutual fund investments as collateral. The smallcase loan against mutual funds is a convenient way for borrowers to secure funds without liquidating their investments within a few hours. Let us now understand a few things to consider about loans against mutual funds.
Understanding Loans Against Mutual Funds (LAMF)
Taking a loan against mutual funds (LAMF) is essentially borrowing money against the units of the mutual funds you own. It’s akin to obtaining a mortgage against your house, but your mutual fund units might serve as the collateral in this case. With smallcase, you can easily do lien marking of your Mutual Funds (MF) digitally and get an instant loan. This type of loan on mutual funds is potentially becoming popular due to its unique features and the fact that borrowers can still continue to earn returns on their mutual funds while also using them as a collateral for their loan. Here are a few things to know before getting a LAMF:
Things to Know Before Getting a Loan Against Mutual Fund (LAMF)
- You Can Get a Loan Only Up to a Limit of Your Mutual Fund Holdings: The loan amount you can secure depends on your mutual fund holdings, the type of mutual fund scheme in which you’ve invested and the financial institution from which you intend to borrow.
- Not All Banks May Give You Loans Against All Mutual Funds: Several banks exclusively provide loans based on specific mutual fund plans they have selected.
- It Can Cost You Less Than Personal Loans & Credit Cards: An added advantage of borrowing against mutual funds to consider is the potentially lower loan against mutual funds interest rate compared to personal loans and credit cards. This is attributed to the secured nature of these loans, as they are guaranteed by collateral.
- You May Continue To Earn Returns On Your Pledged Mutual Fund Units: By taking loans on mutual funds, you will be pledging some units as collateral. These pledged units may remain invested in the market to serve as security. When you pledge your mutual fund units at a bank, the bank retains the right to sell the funds solely in the case of a default. If you do not default, your investments will stay in the market, allowing you to continue earning returns.
- There is an Upper Limit on the Loan You Can Avail: Similar to other types of loans, there can be particular limitations associated with mutual fund loans. Numerous banks may impose both maximum and minimum loan amounts that borrowers can avail.
- Your Existing Lump Sum & SIP Investments in Mutual Funds Remain Unaffected: LAMF is a facility that allows investors to borrow against their mutual fund holdings without having to sell their units. This means that investors can continue to benefit from the long-term growth potential of their mutual funds while also assessing liquidity to meet their financial needs.
Few Other Things to Consider For Taking a Loan Against Mutual Funds at smallcase
- Interest Rate: Borrowers can take a loan against SIP mutual funds via smallcase starting at a 10.75% interest rate per annum.
- Loan Amount: You can avail a loan against mutual funds on smallcase from ₹25,000 to ₹5,00,00,000.
- Tenure for LAMF: The default loan duration for a loan against mutual funds is set at 36 months on smallcase. But if you decide to settle up ahead of time, no worries! You can wrap up things early, and guess what? There won’t be any foreclosure charges with smallcase.
- Loan Against Mutual Funds Eligibility Criteria: To get a loan against mutual funds on smallcase, the borrower should be a resident of India, above 18, and a self-employed/ salaried resident (for equity and debt funding).
- Documents Required: Applying for a loan against mutual funds is completely digital and paperless. 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.
- LAMF Application Process: If you hold units in a demat account and have obtained permission, online portals can quickly approve loans. You can either establish the loan agreement with the bank or convert the physical units to electronic format for physical funds. Here is how you can apply for a LAMF on smallcase.
How to Take Loan Against Mutual Funds at smallcase?
Here is how to get loan against mutual funds through smallcase:
- Log in/download the smallcase app
- Navigate to the ‘More’ tab and select ‘Loan Against Mutual Funds’.
- smallcase will then check your mutual fund holdings and display your maximum eligible loan amount as a credit line
- Click on ‘Apply Now’.
- Import your mutual fund holdings and pledge them based on the loan amount.
- Proceed to confirm your loan amount.
Note: you can choose to take only a part of the max eligible amount (not necessarily the entire amount).
- Enter your bank account details
- Sign the loan agreement.
- You should receive cash in your bank account within 2 working hours.
In case it takes longer, you can always reach out to the smallcase support team at mailto:help@smallcase.com.
To Wrap It Up…
A Loan against MF (LAMF) offers a unique combination of flexibility, lower interest rates, and the continued opportunity to earn returns on your investment. As with all financial decisions, assessing your financial situation, understanding the risks, and consulting with a financial advisor is essential. You can now avail loans against mutual funds without disrupting your long-term investment strategy via smallcase!
Frequently Asked Questions About Things to Consider Before Applying for LAMF
A loan against mutual funds allows investors to borrow money by using their mutual fund investments as collateral. It provides a way to access funds without selling the mutual fund units, enabling investors to meet their financial needs while still retaining ownership of their investments.
Opting for a loan against mutual funds online can be a suitable choice for investors seeking immediate liquidity without liquidating their mutual fund holdings. However, it is essential to carefully evaluate the terms and conditions of the loan, including interest rate on loan against mutual funds, repayment terms, and associated costs.
The loan amount depends on the value of the mutual funds you will keep as collateral. You can get a loan against mutual funds or LAMF from ₹25,000 to ₹5,00,00,000 via smallcase.
The benefits of availing a LAMF can be:
– Lower Interest Rates
– Flexible Repayment
– Quick Process
– Overdraft facility
No, there are zero foreclosure charges at smallcase.
For a smallcase LAMF, on a monthly basis, you only pay an interest at the rate of 10.75% per annum. on the outstanding loan amount. For instance, if you have an outstanding loan of Rs. 1 lakh, your monthly payment would be (1 lakh) x (10.75/12)/100) = Rs. 895.
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