Loan Against Mutual Funds: Features and Benefits
In today’s economic world, financial needs can arise unexpectedly, demanding quick access to funds. While opting for personal loans or breaking your investments might seem like viable options, they can disrupt your long-term wealth-creation process. Addressing this issue, we at smallcase have introduced Loan Against Mutual Funds (LAMF), a type of Loan Against Security (LAS) that allows you to borrow against your mutual fund holdings at a lower interest rate. In this blog, you will learn about the loan against mutual funds application process, features, and benefits. Let’s begin.
What is a Digital Loan Against Mutual Funds?
Loan Against Mutual Funds (LAMF) is a type of Loan Against Security (LAS) where you can use your mutual fund investments as collateral to borrow money. These mutual funds are registered with Computer Age Management Services Limited (CAMS). Unlike traditional personal loans, where you approach a lender based on credit history and income, LAMF helps you access funds without breaking your investments.
At smallcase, you can easily avail a loan against mutual funds from the comfort of your home, as it is completely digital. The best part of opting for LAMF via smallcase is that it is available to all users at a competitive interest rate starting at 9.99% p.a. You can learn more about the Loan Against Mutual Funds (LAMF) from our learn article.
Thus, the competitive interest rate, flexibility in fund types, and paperless loan-against-mutual-funds process make it an attractive option for investors looking to meet their financial needs without selling their mutual fund units.
How to Apply for a Loan Against Mutual Funds via smallcase?
- Log in to smallcase Credit: Visit smallcase Credit and click on Against Mutual Funds to check your credit limit.
- Check eligible funds: View SBI mutual funds and other eligible holdings available for pledging.
- Select funds to pledge: Choose funds as collateral and check the credit limit.
- Link your bank account: Add bank details for disbursement and set up an e-mandate.
- Pledge your mutual funds: Selected units are lien-marked while staying in your folio or demat account.
- Sign the loan agreement: Review, verify with OTP, and sign online.
- Receive the loan amount: The amount is usually credited within 2 working hours after signing.
What are the Features of Loan Against Mutual Funds?
By availing a loan against mutual funds (LAMF) via smallcase, you can now protect yourself against unforeseen events by taking out a loan secured by your mutual fund holdings. Here are some of its features:
- Instant Access to Credit: Life is unpredictable, and so are your financial expenses. Therefore, with a predetermined limit based on the fund type (i.e., debt and equity funds), you can avail a loan against mutual funds for business or personal use, up to 45% for equity MFs and 75% for debt MFs. It offers immediate liquidity against the mutual fund units you own.
- Lower Interest Rates: Availing a mutual fund-pledged loan has never been easier. You can easily avail a loan against mutual funds at an interest rate starting at 9.99% p.a., which is lower than that of personal loans and credit cards.
- Loan Tenure: The default loan tenure for loans against mutual funds is 36 months. However, if you wish to close your secured loan on mutual funds earlier, you can do so without any foreclosure charges at smallcase.
- Lower Monthly Payments: By applying for loans against investment funds, you only need to pay interest every month on the borrowed amount. For example, if you borrow ₹1 lakh, you only need to pay ₹875 every month at an interest rate starting at 9.99% p.a., with complete flexibility to repay the principal any time before the loan tenure ends.
- Zero Foreclosure Charges: You can make a payment towards your outstanding mutual fund loan amount anytime with zero foreclosure charges with smallcase.
- Flexible Repayment: The mutual fund loan repayment features and terms are quite flexible if you opt for a loan by borrowing against mutual funds via smallcase. Choose to pay the principal at any time during the repayment period.
Benefits of a Loan Against Mutual Funds
LAMF may offer several advantages for individuals looking to meet their financial needs without selling their mutual fund investment. Here are some of the potential instant loan against mutual funds benefits:
- Retain Ownership: By pledging mutual funds as collateral, you can access funds immediately while continuing to benefit from investment returns. This means you can keep investing and earning returns/dividends, but you won’t be able to sell/redeem your mutual funds.
- Get LAMF Within Hours: Applying for a personal loan against mutual funds and waiting for days for approval can be frustrating. However, at smallcase, if you meet the eligibility for a loan against mutual funds and have sufficient fund holdings, the entire process from application to disbursement will be completed in 2 working hours.
- 100% Digital Process: Now, you don’t have to visit banks or contact relationship managers. At smallcase, you can quickly complete your entire journey of availing a loan against mutual funds in just a few clicks on your mobile app.
- Wide range of Mutual Fund Schemes: From a list of 6000+ mutual fund schemes, you can see how much loan against equity mutual funds or debt mutual funds you can take against your funds.
- Select from a List of Approved Securities: Mutual fund companies work with CAMS & KFin (earlier known as KARVY) as their Registrars and Transfer Agents (RTAs). These RTAs mark liens only on funds held in non-demat form, against which you can take a loan against mutual funds for emergencies or other reasons.
Common Issues and How to Fix Them
- Credit Limit Shows ₹0: Your funds may be locked in (ELSS with a 3-year lock-in), already pledged, or outside Bajaj Finance’s approved list. Check your holdings against the approved list before contacting support.
- Invalid IFSC Error: Verify the IFSC code against your cheque book or the bank’s website. If the error persists, contact support.
- E-Mandate Pop-Up Stuck or Loading: Enable third-party cookies in your browser settings before completing this step. Disable once done.
- Loan Agreement Page Stuck: Wait a couple of minutes and refresh. If still stuck, contact support with your application details.
- Loan Not Disbursed After 2 Working Hours: Contact support immediately with your application reference number.
- Want to Cancel After Pledging but Before Signing: Contact support before e-signing. A ₹500 lien removal charge applies.
- Set Up E-Mandate, but No Longer Want the Loan: Cancel the e-mandate via your bank’s net banking portal. No loan will be disbursed.
To Wrap It Up…
To conclude, LAMF gives investors a way to access funds without liquidating their existing investments, combining a credit line, flexible repayment terms, and lower interest rates than most traditional loans. If you have mutual fund holdings and a short-term funding need, exploring LAMF on smallcase may be worth considering.
All About Loan Against Securities & Loan Against Mutual Funds on smallcase –
smallcase offers quick and easy disbursement of loans against mutual funds ( LAMF). Explore all about the eligibility criteria, documents required, features, and benefits of a Loan against mutual funds on smallcase
Frequently Asked Questions on Loan Against Mutual Funds Features and Benefits
To obtain a loan, you can only pledge funds held in non-demat form, specifically those held in the Statement of Accounts (SoA) or physical form. Moreover, your pledged funds must also be included in the lender’s list of eligible mutual funds, which currently covers 8,000+ approved schemes.
You can provide shares as collateral, either from your own holdings or from eligible family members (parents, spouse, children, and siblings over 18 years old and who share the same blood relation as you). Please note that eligibility criteria for third-party pledging may vary by lender; not all lenders may allow pledging on behalf of family members.
Disclaimer: Not all lenders may allow third-party pledging. Eligibility criteria may vary.
smallcase allows you to avail a loan against mutual funds ranging from ₹25,000 to ₹5,00,00,000. It is determined by the value of the mutual funds you use as collateral.
When you need funds, LAMF can be a convenient and flexible solution. Unlike some loans that require property, a steady income, or a good credit score, a loan against mutual funds uses your existing fund holdings as collateral. Additionally, you pay interest only on the borrowed amount, not on the entire loan amount.
After you take the loan, the lender will pledge your funds as collateral. This means you can continue to invest and earn returns/dividends while maintaining ownership of your mutual fund units. However, it’s important to note you might not be able to sell or redeem them until the loan is fully repaid.
