Loan Against ELSS Mutual Funds: An Overview
ELSS, known for its dual benefits of tax-saving and wealth creation, has taken a giant leap forward with the introduction of a new offering: Loan Against ELSS Mutual Funds.
Gone are the days of choosing between long-term investments and short-term financial needs. With a loan against ELSS funds, you may now have the flexibility to navigate unexpected expenses. Additionally, seize investment opportunities, or address urgent financial requirements, all while your ELSS investments continue to grow.
In this crisp and modern financial manoeuvre, now investors can unlock the value of their ELSS investments by availing loans against them. It can be a strategic play that empowers you to access liquidity while keeping your wealth creation journey intact.
What is ELSS Mutual Fund?
ELSS Mutual Fund is also known as Equity Linked Savings Scheme. It is a type of mutual fund that offers tax benefits to investors under Section 80C of the Income Tax Act of 1961. ELSS funds can invest primarily in equity or equity-related instruments, and they have a lock-in period of three years. This means that investors might not be able to withdraw their investments from the fund for at least three years.
What is a Loan Against ELSS Mutual Funds?
A Loan against ELSS Mutual Funds is a financial arrangement that allows you to borrow money using your Equity Linked Savings Scheme (ELSS) mutual fund units as collateral. ELSS funds can be a good investment option that offers both tax benefits and the potential for capital appreciation. With this loan feature, you can access funds without having to sell your ELSS units. Thus, this enables you to meet short-term financial needs while keeping your long-term investment intact.
Let’s say you have invested in ELSS mutual funds for tax-saving purposes. However, now you suddenly need money for a short-term expense. Instead of selling your ELSS units, which could have potential long-term gains, you can opt for loans against ELSS units. The loan amount is determined based on the current value of your ELSS units, and you can use the funds for various purposes like paying off a medical bill, covering education expenses, or handling any unforeseen financial requirement.
Things to Know Before Getting Loan Against ELSS
Loan Against ELSS Interest Rate
The interest rate for a Loan Against ELSS Mutual Funds is generally more competitive compared to other loan types. Such as personal loans or credit cards. However, it is advisable to compare interest rates and processing fees among various lenders before making a decision.
ELSS Loan Eligibility & Required Documentation
Eligibility criteria for loan against ELSS mutual funds
- Self-employed/ Salaried Residents (for equity and debt funding)
- Should be a resident of India
- Non-Resident Individual – (for funding against Equity & Debt Mutual Funds held in the borrower’s name
Documents Required to opt for loan against ELSS mutual funds
The specific documents required for a loan against ELSS mutual funds may vary slightly depending on the lender, but the general requirements are as follows:
Proof of Identity (KYC Documents)
- Aadhaar card
- PAN card
- Voter’s ID
- Passport
Proof of Income
- Income tax returns for the last 2 years
- Bank statement for the last 6 months (for self-employed individuals)
Demat Account and Mutual Fund Holdings
- Demat account statement
Loan Against ELSS Loan Tenure
ELSS funds have a lock-in period of 3 years. Therefore, you can only avail of the loan against ELSS mutual funds once the 3-year lock-in period is over.
Repayment Option for Loan on ELSS Mutual Funds
Make sure you understand the repayment schedule and select an option that aligns with your financial circumstances. Some institutions may offer you the choice for regular EMIs (Equated Monthly Installments) or repay the full loan amount at the end of the tenure.
Impact on ELSS Investment
It’s important to recognize that when ELSS mutual fund units are pledged as collateral for a loan, they might undergo a temporary lock. This implies that throughout the loan period, the investor might encounter restrictions on redeeming or modifying the pledged units. Prior to opting for a loan against ELSS mutual funds, investors must do their own research and/or consult their financial advisor before investing.
smallcase to the Rescue
How Can smallcase Help You With Loan Against Mutual Funds?
Considering the potential risks posed by Loan Against ELSS Mutual Funds, LAMF via smallcase can be a good investment opportunity. In contrast to conventional loans where market fluctuations during the tenure may affect the loan amount, LAMF offers a more stable borrowing option.
Whether self-employed or salaried, residents of India aged 18-70, can apply for loans ranging from ₹25,000 to ₹5 crore against approved Mutual Funds held with CAMS & KFintech at smallcase.
Therefore, secure a loan at a highly competitive interest rate starting from 10.75% per annum at smallcase and get cash in your bank account within 2 working hours.
Apply for a loan today
Benefits of Taking a Loan Against ELSS MF
Taking a loan against mutual funds offers several advantages, making it a good option for investors seeking quick liquidity without disrupting their long-term investment goals. Here are some of the key benefits:
- Get your LAMF Limit Online Within Hours: Skip the days of waiting. Enjoy instant approval on LAMF within 2 working hours.
- Wide Range of Mutual Fund Schemes: Choose from a vast selection of over 5000 mutual fund schemes to determine the loan amount against your funds.
- Zero Foreclosure Charges: With smallcase, experience the freedom of zero foreclosure charges, allowing you to settle your outstanding mutual fund loan anytime.
- Low Interest Rate: Now you can easily avail the loan on mutual funds interest rate of 10.75% p.a. i.e. lower than unsecured loans and credit cards.
- Rest Easy with Approved Securities: Mutual funds can be lien marked for both CAMS and KFin (formerly known as KARVY), Registrars & Transfer Agents (RTAs).
- Retain Ownership: Pledge your funds as collateral, accessing immediate funds while retaining ownership and continuing to enjoy returns on your investments.
Why Consider smallcase’s Loan Against Mutual Funds?
When it comes to taking a loan against mutual funds (LAMF), there are several scenarios where obtaining LAMF can be helpful.
- Financial Emergency Needs: LAMF offers a strategic solution for unforeseen expenses. Therefore, this allows individuals to confidently face emergencies without selling existing investments.
- Financing Short Term Goals: Whether it’s a dream vacation, education expenses, or home renovation, LAMF provides financing for short-term goals without disrupting the investment portfolio. This approach helps investors achieve aspirations without compromising long-term financial plans.
- High Interest Debt Consolidation: By leveraging a loan against mutual funds, individuals can consolidate multiple debts into a single, simplifying their financial management.
- Availing Big-ticket Purchases: For significant purchases like cars or homes, LAMF can be a beneficial financing option. Investors can leverage mutual funds without the need to exit investments or delay purchases, obtaining a Loan Against Mutual Funds at an ultra-low interest rate of 10.75% per annum.
How to Apply for a Loan Against Mutual Funds?
Get a Loan Against Mutual Funds easily through our completely paperless and digital process in just 5 minutes through the smallcase app. Follow these simple steps:
- Log in to the smallcase app
- Go to the More tab, select Loan Against Mutual Funds
- Check your MF credit limit
- Click on Apply Now
- Import your MF Holdings and pledge them according to the desired loan amount
- Sign the loan agreement
- Get cash in your bank account within 2 working hours.
To Wrap It Up…
In conclusion, a loan against ELSS mutual funds introduces a dynamic dimension to financial flexibility, offering investors the opportunity to meet short-term liquidity needs while maintaining a foothold in their long-term wealth creation journey.
As always, please do your own research and/or consult a financial advisor before investing.
FAQs
Yes, ELSS units can be used as collateral for a loan against ELSS mutual funds.
Yes, you can invest in multiple ELSS mutual funds. In fact, it is generally recommended to diversify your ELSS investments across different schemes to reduce risk and enhance potential returns.
Any individual who meets the eligibility criteria set by the lender can take a loan against ELSS mutual funds. These criteria typically includes:
1. Indian citizen or resident of India
2. Sufficient income to repay the loan
3. Good credit history and credit score
4. ELSS units must be held for a minimum period, usually 12 months or 24 months, before being pledged as collateral.
Lien marking charges are fees levied by lenders when they place a lien on your assets, such as mutual fund units, as collateral for a loan.
