Loan Against Mutual Funds (LAMF) FAQs
About LAMF
1. What is Loan Against Mutual Funds?
Loan Against Mutual Funds (LAMF) is a type of loan where you can borrow money from a financial institution or lender by using your mutual funds investment as collateral.
2. What is the purpose of a Loan against Securities?
The purpose of a loan against securities is to provide you with access to cash without having to sell your securities. This can be helpful if you need money for a short-term financial emergency.
3. How to get loan against mutual funds?
Now you can avail the benefits of operating for loan against MFs online by following these 4 easy steps.
- Import & select the mutual funds you want to use as collateral
- Add a bank account to receive funds and auto-debit interest payments
- Pledge your holdings with the lender
- Sign the loan agreement online
At smallcase, money will be disbursed to your bank account in just 3 hours after approval.
4. How much loan can I get?
You can avail a loan against mutual funds investment from ₹25,000 to ₹5,00,00,000.
5. What is the tenure of the loan against mutual funds?
The default loan tenure for loan against mutual funds is 36 months. However, if you wish to close your loan earlier, you can do that at any time without any foreclosure charges with smallcase.
6. What will be the loan against mutual funds interest rate?
The loan percentage ranges between 10-20% on the outstanding principal. However, with smallcase the loan starts at 10.75% p.a.
7. Where can I find the approved list of mutual funds?
You can easily avail a digital loan against mutual funds online. You can check the list of mutual fund schemes at the smallcase app.
8. What are the features of loan against mutual funds(LAMF)?
There are multiple features if you opt for a loan on mutual funds online with smallcase. You can also click here to know more about its features.
9. What are the benefits of taking a loan against mutual funds from smallcase?
- Get LAMF Limit Online Within Minutes
- Access to 5000+ mutual fund schemes
- Zero Foreclosure Charges
- Attractive Interest Rate
- Retain Ownership of Investments
- Instant Disbursal
10. Is it a good idea to take a loan against mutual funds?
Yes, a loan against mutual funds (LAMF) is a better debt option when compared to personal loans and credit cards. By availing credit card against mutual fund, you get to choose your desired debt amount as it offers a great repayment facility, unlike the above-mentioned traditional loans.
Eligibility
1. What are the minimum and maximum required age for availing a loan against a mutual fund?
To avail loan against mutual funds, an individual should be between 18 years to 70 years of age.
2. What are the eligibility criteria for opting for a loan against mutual funds?
- Self-employed/ Salaried Residents (for equity and debt funding)
- Age – 18 Years to 70 years of age
- To be a citizen of India
- Limit of the loan – 25K to 5 Cr
3. Which mutual funds are accepted for availing a loan against mutual funds?
You can obtain a loan against equity or hybrid mutual funds by approaching any non-banking financial institution (NBFI) or bank. However, if you opt for LAMF at smallcase, we offer over 5000+ approved schemes in equity, debt & hybrid categories. You may access the list here.
4. Funds pertaining to which AMCs can be pledged to avail a loan against mutual funds?
All AMCs registered with CAMS funds net (Computer Age Management Services) and K-Fin Technology (Registrar) can be pledged to avail of a loan against mutual funds.
5. Can I avail loan against mutual funds held in demat form?
No, we do not allow loan against mutual funds which are held in demat form. The funds must be held with RTAs (CAMS or KFin) in the Statement of Account (SOA) form.
6. Can I change/swamp shares during my loan tenure?
Some financial institutions allow you to change/swamp shares during the loan tenure. However, at smallcase, the pledged loans cannot be tampered with.
Documents
1. What are the documents required while applying for a loan on mutual funds?
The documentation slightly differs from bank to bank. However, for most banks, these four documents are important. These include proof of identity, proof of address, proof of employment, and documentation confirming the ownership of the mutual fund investments.
For getting a LAMF on smallcase, you do not need any detailed list of documents* if you want to opt for a loan against mutual funds(LAMF). So experience the hassle-free process with zero formalities!
*Some users may be asked to produce their Aadhar number in case of any discrepancies
Payments & Fee
1. What should I do if a payment is not reflected on the loan dashboard?
If the payment is not reflected on the statement within 6 working hours, then please reach out to our support team and share a screenshot of the transaction for further assistance.
2. What is the frequency of interest payments?
Interest on a loan against mutual funds facility is payable monthly.
3. What is the interest payment cycle for a loan against mutual funds?
The interest cycle calculates from the 7th day of each calendar month to the 6th day of the succeeding month. The loan generates interest due on the 7th of every month.
4. Is my interest applicable to the entire loan limit?
No. The interest is charged only on the loan amount that you have drawn down or the outstanding loan amount.
5. What will happen if an interest repayment is not made?
Failing to make an interest payment will result in a bounce charge (incase of smallcase it is ₹1200). Furthermore, a penal interest per month to the outstanding interest amount is applied, starting from the date when the auto-debit failed until the overdue interest amount is paid in full.
6. Do I need to repay the loan with EMI on a monthly basis?
There is no EMI associated with loan against mutual funds (LAMF). You have the flexibility to repay the remaining principal, whether in full or in part, whenever you desire. Your linked bank account will automatically deduct only the interest on the remaining loan balance each month.
7. What are the various charges & fees?
If you opt for a loan against mutual funds online with smallcase, these are the following list of charges and fees. Please note, the loan against mutual funds interest rate is related to smallcase only. It may differ from other financial institutions.
| Processing Fee | ₹999 or 1% of loan amount whichever is higher upto a maximum of ₹4999 (GST applicable) |
| Late Payment Interest | Penal Interest is charged @ 2% per month |
| Bounce charges (for failed interest payment) | ₹1200 per bounce |
| Annual Renewal Charges | NIL |
| Loan top-up charges | NIL |
| Part-prepayment charges | NIL |
| Foreclosure charges | NIL |
| Mandate inactive charges | NIL |
| Mandate verification (charged by your bank) | As charged by your bank (typically between ₹0 to ₹150) |
| Lien removal charges ( (if requested after taking loan) | NIL |
| Lien removal charges (if loan is canceled before disbursement) | Actual processing fee applicable |
| Collection/legal Charges (in case of default) | At actuals |
8. Are there any foreclosure charges to close a loan before the tenure ends?
The foreclosure charges vary from 2% to 3%. However, at smallcase, there are no foreclosure charges for closing a loan before the end of tenure.
Shortfall
1. What is LTV(loan-to-value)?
Loan-to-value (LTV) ratio is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased.
2. What is the loan-to-value offered against the mutual fund loans?
At smallcase, you can avail a loan of 45% of the Loan-to-Value (LTV) against your equity mutual funds and 75% LTV against your debt mutual funds. To illustrate, if your equity mutual fund portfolio has a current value of ₹1L, you can secure a loan of ₹45,000.
2. What happens when the price of my mutual funds falls?
This value is 45% for equity MFs and 75% for debt MFs and is called the “Loan to Value” ratio. LTV is subject to changes on account of Regulatory Changes. If the value of the funds you promised decreases, causing your loan amount to exceed these percentages, you must repay a specific amount so that your loan-to-value ratio returns to the acceptable range. Failure to make this repayment will result in the lender recovering this amount by liquidating your pledged MFs.
4. What should I do in case of a shortfall?
In the event of a shortfall, principal repayment has to be done with a minimum amount equivalent to the shortfall amount. With that, the shortfall will be fulfilled and the LTV ratio will be maintained.
5. What if I am unable to fulfill the shortfall within 7 business days?
In case you fail to fulfill the shortfall within 7 business days, smallcase holds the right to sell the lien-marked mutual funds to make good the shortfall.
6. How can I make a good shortfall?
You can simply repay the shortfall or pledge more shares to make a good shortfall.
Closure
1. How can I close the loan?
If you’re investing in a loan against mutual funds (LAMF) with smallcase, you have the freedom to close your loan whenever you want, and there are no extra fees or penalties. To request loan closure, you can go to the help section of your loan dashboard or contact the support team. Once you do this, your pledged mutual funds will be returned to you, and your loan account will be closed promptly.
2. When can I unpledge/release my pledged mutual funds?
If you have enough funds and are not short on money, you can withdraw mutual funds. After checking everything, your request will be processed comparatively in less time on smallcase.
3. How to unpledge/release the pledged mutual funds?
Once the loan is completely paid off, all funds previously held as collateral will be set free and made available. This means that once all outstanding payments are settled, the loan can be officially closed at any time.
4. Is it possible to make a part prepayment/ foreclosure before the end of the loan tenure?
Yes, it is possible. You may make a part-prepayment or foreclose the entire loan before the end of the tenure. There are no foreclosure charges at smallcase.
Withdrawal
1. Can I withdraw more amount by pledging extra mutual funds?
Currently, we do not facilitate additional pledging of mutual funds to extend the limit. We will let you know whenever this gets introduced.
2. Why is my withdrawable limit less than the repaid principal amount?
The total amount available for withdrawal is calculated by taking a certain percentage of your pledged holdings. This could vary due to fluctuations in the valuation of your pledged holdings. As a result, it is possible that the total amount you can withdraw on some days is less than your overall sanction limit, which would happen if the value of your holdings has dropped.
3. How long will it take for funds to be credited to my bank account?
The processing time for funds to be credited to your bank account during LAMF (Loan Against Mutual Funds) depends on the bank or NBFC you have applied to. Generally, it takes around 1-3 business days for the funds to be credited to your account. However, at smallcase, the funds get credited to your bank account within 3 hours of the request, if not you can connect with us on help@smallcase.com.
LOS (Step-Wise)
Holdings import (calculate credit limit)
1. Why do I need to fetch my holdings from CAMS & KFin?
The value of your mutual fund holdings fetched using CAMS and KFin is used to calculate the amount of loan you’re eligible for. Typically, equity and hybrid schemes can provide a loan of up to 50% of their value while debt schemes can provide up to 80% of their value.
2. Which email address and phone number should I use to fetch holdings?
To get investments in mutual fund schemes managed by CAMS, use the phone number linked to your account. For schemes managed by KFin, provide the email address associated with your account.
You can check the email & phone numbers associated with your mutual fund investments in your Consolidated Account Statement here.
3. What is the credit limit and how is it calculated?
The credit limit represents the maximum loan you can get using your eligible mutual funds. To determine how much you can borrow against a mutual fund, a percentage is applied to the value of the mutual funds you want to use as collateral. This percentage is 45% for equity mutual funds and 75% for debt mutual funds.
4. Which mutual funds can be pledged to take the loan?
To unlock the power of loan on mutual funds, you must hold them in good old-fashioned paper form, known as SoA, with CAMS and KFin. But that’s not all! Your mutual funds need to be part of the lender’s approved list of funds.
Offer Confirmation (Confirm Limit)
1. Why is my calculated credit limit less than the mutual fund investments?
The total amount that you can borrow against your mutual funds is calculated by taking a haircut percentage of the value of the mutual funds you wish to pledge. This percentage is 45% for equity MFs and 75% for debt MFs.
Therefore, your overall credit limit is calculated by taking these percentages against each of your mutual funds after applying defined haircuts.
2. Some of the funds are missing. Why?
Some mutual funds may be missing because of these possible reasons:
- Fund is held in demat form
- Fund is under lock-in period (Eg. ELSS funds have 3 year lockin period)
- Fund is already pledged
- Holdings were not fetched from both RTAs (CAMS & KFin), or not all registered phone numbers and email addresses were verified. Try “increase” option to verify additional contacts (phone & email)
3. Funds units are less than actual investment. Why?
This situation occurs when mutual fund units are restricted from being sold for a specific time. For instance, tax-saving funds have a lock-in period of 3 years. During this time, the locked-in units cannot be used as collateral.
Link Bank Account
1. My bank is not showing up on the bank list
Please make sure you have the correct and complete name of the bank. If the problem continues, please reach out to our support team for assistance.
2. Why is the requirement for e-mandate?
To avoid late payment penalties, you need an e-mandate for automatically collecting monthly interest. The lender will only deduct the minimum amount of interest owed.
3. I am getting an invalid IFSC error. What should I do?
Confirm that you are entering correct IFSC code. Therefore, if that still does not work, please contact the bank’s customer support.
4. A white popup keeps loading while setting up e-mandate?
Third-party cookies are required for setting up e-mandate. Kindly enable third-party cookies from your browser settings, and retry the flow. Once the mandate setup flow is complete, you may disable it back.
Pledge Mutual Funds
1. Whose shares can I pledge?
You have the option to provide shares as collateral, either from your own holdings or from eligible family members (parents, spouse, children, and siblings who are over 18 years old and share the same blood relation as you).
2. What are the tax implications due to pledging?
There will be no changes with respect to tax consideration for the shares provided as collateral for securing the loan. There would be a change of duration for calculating capital gains only if the shares are unpledged and sold by the client, or if the shares are confiscated by the lender.
Agreement Signing
1. The screen is stuck at “Generating your Agreement” screen. Help!
If the screen is stuck for longer than a couple of minutes, please share your details with the ledger/bank customer support.
2. How do I sign the agreement?
On the lender’s agreement screen, scroll to the bottom of the page and verify the OTP.
All About Loan Against Securities & Loan Against Mutual Funds on smallcase –
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