Loan Against Mutual Funds (LAMF) vs Personal Loans: Interest Rates, Finance & How to Take Them

In today’s fast-paced world, financial needs often arise unexpectedly, demanding immediate attention and quick access to funds. While traditional options like personal loans or redeeming investments may seem viable solutions, they often come with significant drawbacks that can impact long-term financial goals. At smallcase, we wanted to solve this exact problem, and that is how we came up with our latest offering – Loan Against Mutual Funds.

With LAMF, we aim to empower investors with a financial tool that ensures they stay on track with investment plans while accessing the required funds conveniently.Let us begin by understanding what is loan against mutual funds and personal loans. 

Understanding Loan Against Mutual Funds

Unlike traditional personal loans, where you approach a lender based on your credit history and income, LAMF leverages your existing mutual fund investments as collateral. With LAMF, you can unlock the value of your investments without the need to liquidate them, enabling you to maintain your long-term investment strategies intact.

What are Personal Loans?

Borrow funds for various needs with a personal loan from banks, credit unions, or online lenders. Repay over time with interest, covering debt consolidation, home renovations, or your dream wedding. Watch for potential fees.

Benefits of Loans Against Mutual Funds

Loan Against Mutual Funds (LAMF) offers a range of critical features that make it an attractive and compelling option for borrowers in need of short-term liquidity. Key features of loan against mutual funds (LAMF) such as documents & eligibility are given in the table below –

Why are Loans Against Mutual Funds Better?

Let’s assume you have a personal loan and mutual fund loan, both worth ₹10,00,000. The personal loan has an interest rate of 15% per annum, while the loan against securities has an interest rate of 10.75% per annum.

Here’s a simple comparison for a tenure of one year between loan against mutual funds vs personal loans:

Note: The principal can be paid back at any point. 

The difference between loan against Mutual Fundss and personal loans in interest paid after just one year is already significant, and it becomes even more pronounced over time between LAMF vs personal loans.

Why is taking a LAMF better than exiting investments?  

The importance of investment continuity cannot be overstated when it comes to long-term wealth building. Redeeming investments to meet short-term financial needs can lead to significant opportunity costs, as it may impede the potential returns that could have been earned had the investments been left untouched. Here is where loan against mutual funds vs personal loans, proves to be a prudent choice. 

With LAMF, borrowers can access the required liquidity without disturbing their well-thought-out investment strategies. By leveraging their mutual fund investments as collateral, they can unlock the necessary funds while maintaining their long-term financial goals intact, ultimately enhancing their overall financial well-being.
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What can LAMF be used for? 

When it comes to leveraging LAMF, there are several scenarios where this financial tool can prove to be a game-changer, offering investors much-needed financial flexibility without compromising their long-term investment objectives.

Financial Emergency Needs

LAMF can play a pivotal role in catering to unforeseen expenses without the need to sell existing investments during crises. This strategic approach allows individuals to face emergencies with confidence, knowing that their investment portfolio remains intact, and they can continue working towards their financial goals.

Funding Short-Term Goals

Whether it’s fulfilling a dream vacation, funding higher education, or renovating a home, short-term goals often require significant financial resources. Instead of disrupting their investment portfolio or burdening themselves with high-interest personal loans, investors can turn to LAMF for financing these aspirations\ without sacrificing their long-term financial plans. 

Debt Consolidation

Dealing with multiple high-interest debts can be overwhelming and financially draining. LAMF provides an efficient solution for borrowers seeking to consolidate their debts and manage their finances more effectively. By availing a loan against equities or their mutual funds, borrowers can pay off high-interest debts and consolidate them into a single, more manageable loan.

Downpayment on Big-ticket Purchases

Making big-ticket purchases like cars or homes can seem financially daunting even with the aid of specific loans. Even with loans, the initial expenditures aren’t covered and you often end up paying considerable amounts out of your pocket while trying to work out regular expenditures. In such cases, LAMF can prove to be very beneficial for investors. Getting a loan against your investments while still reaping returns sounds like an ideal scenario for investors. No need to exit investments to fund these purchases or put them on hold anymore – simply leverage your mutual funds to get a loan at an ultra-low interest rate with LAMF. 

How to avail LAMF at smallcase?

Unlock a loan against your MFs online with smallcase in these simple steps:

1. Import and select MFs for collateral.
2. Confirm LAMF eligibility.
3. Add a bank account for fund receipt and set up auto-debit.
4. Pledge your MFs and sign the loan agreement.

Seamlessly resume from where you left off. Remember, pledged MFs can’t be sold. Monthly interest is auto-debited. Timely payments are crucial to avoid extra charges.

To Wrap It Up…

The benefits of LAMF as a credit line shine brightly in comparison to personal loans. With LAMF, borrowers gain access to funds at lower interest rates, ensuring significant interest savings over time. Additionally, investors can enjoy lowest EMI on loan against mutual funds!

By leveraging mutual fund investments without liquidating them, borrowers can continue to reap the rewards of compounding and potential market growth, bolstering their long-term wealth-building prospects. By using LAMF as a credit line, investors can achieve short-term financial goals while preserving and nurturing their investments for a brighter, more prosperous financial future.

FAQs

All About Loan Against Securities & Loan Against Mutual Funds on smallcase – 

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