Learn Why to Opt for Loan Against Mutual Funds (LAMF) via smallcase
Many of us have faced sudden, unplanned expenses, such as medical emergencies or urgent home repairs. Typically, our first thought is to cash in our investments or take a loan against assets. But what if those investments are underperforming or have sentimental value, like gold? The alternative leads to personal loans, credit cards, or modern options like buy now, pay later loans (BNPL). These are unsecured loans, requiring no collateral, favoured for their speed and simplicity. However, if you wish to seek a lower interest rate and avoid selling your mutual funds, then you can consider an alternative like a loan against your mutual funds (LAMF).
What is Loan Against Mutual Funds (LAMF)?
Loan Against Mutual Funds (LAMF) is a financial arrangement where individuals use their mutual fund investments as collateral to obtain a loan from a financial institution or lender. With smallcase, you can digitally do lien marking on your mutual funds (MF) to access instant loans, eliminating the need to sell or redeem your mutual fund investments.
The loan is provided in the form of an overdraft facility, offering flexibility in accessing and repaying funds at your convenience with zero foreclosure charges. However, interest in LAMF can be based solely on the amount used and its duration.
You have the freedom to choose from a diverse range of approved securities in India for collateral. You can also mark a lien on MFs registered with trusted Registrars & Transfer Agents (RTAs) like CAMS and KFintech (formerly known as KARVY) to secure the loan.
Therefore, for those seeking short or medium-term financial solutions, we highly recommend exploring the option of obtaining a loan against mutual funds online to meet your needs.
How to Avail Loan Against Mutual Funds (LAMF) With Smallcase?
Applying for a loan on mutual funds on smallcase can be a straightforward process if you follow the given steps:
- Import and select the mutual funds you wish to use as collateral.
- Add a bank account for fund disbursement and automatic monthly interest debit.
- Pledge your holdings with the lender.
- Sign the loan agreement online.
That’s it! Check your eligibility today by downloading the app for more information.
Why Should You Go For Loan Against Mutual Funds (LAMF) :
Personal Loan
Personal Loan against mutual funds is like having your cake and eating it too! You can access the funds you need while preserving your beloved mutual fund investments. For instance, a home loan against mutual funds may provide a convenient way to secure loans for your future home with minimal interest. It’s akin to having a magic lamp – you rub it, and voila! Instant liquidity without selling your precious assets. Moreover, it may come with lower interest rates compared to other unsecured loans, making it a smarter and more cost-effective choice. So, why consider anything else? You may get the best of both worlds with a loan against MFs and potentially make your financial wishes come true!
Consumer Loan
Opting for a Consumer Loan against mutual funds can offer a practical and advantageous solution. This unique financial instrument may allow you to leverage your existing mutual fund investments without parting ways with them. By doing so, you may retain the potential for future growth in your investments while gaining immediate access to funds for various consumer needs, whether it’s a home renovation, a dream vacation, or unexpected expenses.
With a lower loan against mutual funds interest rates compared to traditional unsecured consumer loans, it can be a cost-effective way to secure the funds you require. Plus, the application process might be typically hassle-free, making it a convenient choice for individuals seeking quick financial assistance without sacrificing their long-term financial goals.
Auto Loan
Opting for an auto/vehicle loan against mutual funds may be a savvy move that might drive your financial journey in the fast lane. Not only does it allow you to maintain your investments’ growth potential, but it may also offer the advantage of lower interest rates, typically ranging from 9% to 12%, as compared to traditional auto loan interest rates, which can hover around 12% to 15%.
For instance, if you have mutual fund holdings worth ₹10 lakh, you may potentially secure a loan on mutual funds of ₹7-8 lakhs, depending on your lender and the type of mutual funds pledged. This approach may enable you to get behind the wheel of your dream car while preserving your financial assets and minimizing your borrowing costs. It’s a road worth taking for those seeking a smarter and more cost-effective route to auto financing.
Few Other Benefits of Taking a Loan Against Mutual Funds (LAMF)
When considering financial options, a Loan Against Mutual Funds (LAMF) can offer several compelling advantages:
- Retain Investment Portfolio: One of the most significant benefits is that you can keep your mutual fund investments intact. This is crucial if you believe in the long-term potential of your funds or have sentimental attachments to specific investments.
- Immediate Liquidity: Loan against securities (LAS) provides quick access to funds without the need to liquidate your investments, making it an ideal solution for unexpected expenses or opportunities.
- No Impact on Credit Score: Loan Against Mutual Funds doesn’t impact your credit score as it’s a secured loan. This is beneficial if you plan to apply for other loans or financial products in the future.
- Tax Efficiency: Opting for LAMF instead of selling mutual funds may have tax advantages, as you won’t trigger capital gains taxes that you might incur through redemption.
- Enhanced Borrowing Capacity: Depending on the value of your mutual fund holdings, you can potentially access a larger loan amount compared to unsecured loans.
- Flexible Repayment Options: Lenders often offer flexible repayment terms, allowing you to tailor the repayment schedule to your financial situation.
Table of Comparison Between LAMF, Personal Loans, Consumer Loans and Auto Loans
Here’s a comparative analysis to illustrate why Loan Against Mutual Funds (LAMF) can be a better option compared to Personal Loans, Consumer Loans, and Auto Loans:
| Aspect of Comparison | Loan Against Mutual Funds (LAMF) | Personal Loans | Consumer Loans | Auto Loans |
| Interest Rate | 10.75% | 13-20% | 11-19% | 9-13% |
| Collateral Requirement | Uses existing mutual funds as collateral. | Unsecured | Varies | Requires the vehicle as collateral. |
| Limit of the Loan | You can avail a loan against mutual funds from ₹25,000 to ₹5,00,00,000. | Varies | Varies | Up to 80%-90% of the vehicle’s value. |
| Loan Approval Time | Quick approval process. At smallcase, the disbursement process takes just 2 hours. | May take time. | Varies. | Can be lengthy. |
| Impact on Credit Score | Minimal impact. | Can impact negatively. | Minimal impact. | Can impact negatively. |
| Tax Implications | Tax benefits as you don’t sell mutual funds. | No tax benefits. | No tax benefits. | No tax benefits. |
| Investment Continuity | Allows continued investment in mutual funds. | Not applicable | Not applicable | Not applicable |
| Usage Flexibility | Can be used for various financial needs. | Flexible usage. | Specific to consumer goods. | Limited to vehicle purchase. |
| Risk of Asset Loss | Relatively lower risk. | No risk to assets. | No risk to assets. | Risk of vehicle repossession. |
| Documentation Requirements | Minimal documentation | Extensive documentation | Varies | Extensive documentation |
Please note that the choice of the loan option depends on individual circumstances and financial goals. LAMF stands out for its flexibility, lower interest rates, and minimal impact on existing investments, making it an attractive option for those who wish to access funds without compromising their financial portfolio.
To Wrap It Up…
The digital age has simplified borrowing, and with Loan Against Mutual Funds (LAMF), you can access funds swiftly without undergoing a lengthy procedure. This option not only provides the needed loan amount but also permits ongoing mutual fund investments, which can be repurchased for reinvestment or preserved as a financial corpus.
At always, please do your own research and/or consult a financial advisor before investing.
FAQs
Loan against mutual funds (LAMF) enables individuals to raise the needed amount without liquidating their mutual fund investments. Additionally, borrowers only pay interest on the utilized loan amount, facilitating quick access to funds.
Taking a loan against mutual funds (LAMF) or stock investments offers lower loan against mutual funds interest rates compared to personal loans or credit cards, thanks to its secured nature. Additionally, you can continue earning loan against mutual fund interest rate returns on your investments.
You can avail a loan against mutual funds from ₹25,000 to ₹5,00,00,000 at smallcase.
Only mutual funds held in non-demat form, i.e. only those funds held in the Statement of Accounts (SoA) or physical form can be used to take a loan. Moreover, your mutual funds need to belong to the list of eligible mutual funds prescribed by the lender.
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