Credit Limit Overutilised
The credit limit of your loan against mutual funds or stocks may show as overutilised.
What does this mean?
- Based on the market value of your mutual funds or stocks, every day the lender calculates your current credit limit (also known as drawing power)
Let’s say you took the loan on the 1st Jan when the market value of your mutual funds or stocks was Rs 100 and your credit limit was Rs 45 (LTV at the time of taking the loan is considered as 45% for equity)
On the 2nd Jan the market value of your mutual funds or stocks becomes Rs 80, your updated credit limit will be Rs 40 (LTV after taking the loan is considered as 50% for equity) - If the amount you’ve withdrawn (also known as utilised credit limit or outstanding principal or loan amount) is higher than your current credit limit, then your credit limit is considered as overutilised.
Why has this happened?
It usually happens due to 2 reasons:
- The market value of your pledged mutual funds or stocks may decrease.
- The lender’s risk policy may change the list of eligible mutual funds or stocks, so some of your pledged mutual funds or stocks may become ineligible, leading to a drop in your current credit limit.
What should you do?
- As per the lender’s policy, if your credit limit is overutilised for 7 consecutive days, you will receive a notification informing you about the same.
- When you receive the notification, repay the excess withdrawn amount (also known as the shortfall amount) immediately, by visiting the credit page on smallcase to prevent the lender from liquidating your investments to recover the amount
- If you do not have the funds to repay, you may even pledge more mutual funds or stocks if available.
- Contact us if you have further queries
Let’s say your current credit limit is Rs 40 and the amount you’ve withdrawn (also known as utilised credit limit or outstanding principal or loan amount) is Rs 45.
Then the excess withdrawn amount (also known as the shortfall amount) is Rs 5
What if you don’t pay?
- The lender may sell your pledged mutual funds or stocks to recover the excess withdrawn amount (also known as the shortfall amount)
- For some reason, if the lender is unable to sell your pledged mutual funds or stocks to recover the amount, the lender may consider it a default and may try to recover it using the auto-debit bank mandate, may apply some additional charges and report to the credit bureau.
- We are here to make sure that your investments are protected and no unnecessary charges are applied.
- Contact us via email at help@smallcase.com or chat with our support team.
You may want to read
Find answers to all your queries on loans against mutual funds, including eligibility, process, and benefits. Learn how to access funds without selling your investments.
