Why Consider a Loan Against Mutual Funds?
To meet your unplanned financial expenses, you can now opt for Loan Against Mutual Funds (LAMF). It is a convenient and cost-effective solution that allows you to access funds without having to liquidate your investments. Unlike personal loans that can impact your credit score, LAMF is a secured loan that is collateralised against your mutual fund holdings. This unique feature ensures that your credit profile remains unaffected, preserving your ability to access other financing options in the future. In this blog, we’re going to discuss why one should opt for LAMF, the loan against mutual funds process of application, and how it is different from other traditional loans.
What is Loan Against Mutual Funds (LAMF)?
Loan Against Mutual Funds (LAMF) is a financial arrangement where individuals use their mutual fund investments as collateral to obtain a loan from a financial institution or lender. With smallcase, you can digitally do lien marking on your mutual funds to access instant funds without liquidating your mutual fund units at just 10.5% per annum. This overdraft facility offers flexibility in accessing and repaying funds at your convenience with zero foreclosure charges and no penalty.
With over 6,000+ approved schemes in the equity, debt, and hybrid categories, you can also mark a lien on MFs registered with trusted Registrars & Transfer Agents (RTAs) like CAMS and KFintech (formerly known as KARVY) to secure the loan. Therefore, for those seeking short or medium-term financial solutions, can read our article on Eligibility and Documents to conduct a mutual fund loan eligibility check for opting LAMF.
Want to Apply for a Loan Against Mutual Funds (LAMF)? Consider Exploring smallcase
smallcase is a modern investment platform that helps investors to build low-cost, long-term & diversified portfolios with ease. These smallcases are created and managed by SEBI-registered research analysts. Therefore, with 80+ lakh users, we have launched LAMF at smallcase at a competitive interest rate of 10.5% per annum.
Here is a step-by-step guide to apply for an instant mutual fund loan online via smallcase app within 5 minutes:
- Visit the smallcase app and log in with your credentials.
- Under ‘More’ tab, click on Loan Against Mutual Funds on the smallcase app.
- Import and select the mutual funds you wish to use as collateral.
- Add a bank account for fund disbursement and automatic monthly interest debit.
- Pledge your holdings with the lender.
- At last, sign the digital loan agreement. After verification, the money will be credited to your bank account within 2 working hours.
Few Other Mutual Fund Loan Advantages to Consider
When considering financial options, the best loan against mutual funds can offer several advantages:
- Quick Access to Funds: With LAMF, you can access required funds by pledging your mutual fund investments as collateral. Thus, if you meet the eligibility criteria and have a sufficient amount of mutual fund holdings to take a loan on mutual fund units, then opt for LAMF at smallcase, where funds get credited to your account in just 2 working hours once the verification is done.
- Retain Investment Portfolio: One of the most significant benefits is keeping your mutual fund investments intact. Although you cannot sell/redeem the pledged mutual fund units, you may continue to earn a loan against mutual fund returns during the default mutual fund collateral loan tenure of 36 months.
- Wide Range of Mutual Funds: You can potentially access 6000+ mutual fund schemes. Here is a list of eligible mutual funds you can refer to while pledging your mutual funds.
- Flexible Repayment Options: Lenders often offer flexible repayment mutual fund loan terms, allowing you to tailor the repayment schedule to your financial situation. At smallcase, you can prepay your loan amount at zero foreclosure charges at any time before the end of the secured mutual fund borrowing loan tenure.
To learn more about the features and benefits of LAMF, refer to our learn article on ‘LAMF Features and Benefits’ for better understanding.
Types of Traditional Loans
Personal Loan
A personal loan is an unsecured loan that allows individuals to borrow a fixed amount of money from a lender, typically a bank, credit union, or online lender. It can be taken for various personal expenses, such as debt consolidation, home renovations, medical bills, weddings, vacations, or unexpected costs. No collateral is required to opt for a personal loan as the credit score is taken into account. However, interest rates can be higher than other loan types, ranging from around 13-20% depending on the borrower’s credit profile and the lender. Personal loans provide financing options for consumers, but it’s important to carefully consider the terms and ensure the monthly payments fit within one’s budget.
Consumer Loan
A consumer loan is a type of personal loan that individuals can obtain to finance the purchase of consumer goods or services. These loans are typically unsecured, meaning they do not require collateral, and are based on the borrower’s creditworthiness and ability to repay. Consumer loans can be used for a variety of purposes, such as financing the purchase of electronics & appliances, furniture, or even financing vacation or medical expenses. Usually, the interest rate on consumer loans is between 11-19%. While consumer loans can provide a convenient way to finance purchases, it is important for borrowers to carefully consider the terms of the loan and ensure that they can comfortably afford the monthly payments.
Auto Loan
An Auto Loan, also known as a car loan or vehicle loan, is a type of secured loan used to purchase a new or used private vehicle. The vehicle itself acts as collateral in an auto loan. This type of loan allows lenders to charge lower interest rates, which can hover between 9-13%. The interest rate depends on factors like the borrower’s credit score, the loan term, whether the vehicle is new or used, and the lender.
At smallcase, you can easily opt for a quick loan against mutual funds at an interest rate of 10.5% per annum and get funds credited to your bank account in just 2 working hours. So, there is no need to break your investments as you access funds while continuing to earn returns on your pledged mutual funds.
To Wrap It Up…
To conclude, LAMF has simplified borrowing. With quick access to funds at a competitive interest rate which is lower than many traditional loans, it has helped investors to pledge their mutual funds with minimal impact on their CIBIL score. By using LAMF as a credit line, investors can achieve short-term financial goals without liquidating investments. As always, please do your own research and/or consult a financial advisor before investing.
Frequently Asked Questions on LAMF
Loan against mutual fund SIP or lumpsum enables individuals to have quick access to funds without breaking their investments. Additionally, the interest is levied only on the utilised loan amount, with minimal impact on the CIBIL score, which is typically associated with any loan.
At smallcase, you can avail a digital loan against mutual funds from ₹25,000 to ₹5,00,00,000 with a default loan tenure of 36 months. However, if you wish to close the loan earlier, then you can do that at any time with no foreclosure charges.
Yes. 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.
If you have pledged mutual funds with no intention of opting for a loan, contact customer care and raise a request for removal. Please note that ₹500 will be applied as a lien removal charge.
Usually, foreclosure charges vary from 2% to 3%. However, at smallcase, there are no foreclosure charges applied to the low interest mutual fund loan.
All About Loan Against Securities & Loan Against Mutual Funds on smallcase –
smallcase offers quick and easy disbursement of loans against securities ( LAMF), all about eligibility, documents, features and benefits of Loan against mutual funds and the process for applying for loan is just one click away –
