A mutual fund as an investment instrument is meant for a long term view to adjust for market cycles and fluctuations. Let's take an example : An SBI Small Cap MF has given 31% CAGR over the past 5 years comfortably beating the index. Obviously, it comes with the risk associated with that of a small cap, but the longevity typically helps a MF manager even out and give handsome returns to an investor.

However, time is uncertain and individuals can have liquidity requirements over such a long period. How can you then tap into that investment quickly and easily? That's where a loan against mutual funds comes in. Let's break it down and see why this option could be a great fit for many.

What is a Loan Against Mutual Funds?

A loan against mutual funds is pretty straightforward. Its when you borrow money from a lender and use your mutual fund investments as collateral. Think of it as borrowing against a book collection. You can still enjoy your books, but if you don't return the loan, the lender takes the books back. In this case, if you can't repay the loan, the lender has the right to liquidate your mutual funds (through a process called margin call) to recover the amount.

Why Choose a Loan Against Mutual Funds?

So, why would anyone consider this type of loan? Here are some standout benefits that can make it an appealing option:

Quick Access to Funds

Need cash fast? A loan against mutual funds can often be processed quicker than traditional loans. While banks might take forever to approve your application, using your mutual funds could speed things up. In our case, its completely digital and you get your credit line in a few minutes !

Lower Interest Rates

Loans against mutual funds usually come with lower interest rates compared to personal loans or credit cards. To give an example, a borrower with a 750+ credit score in the current market typically gets a loan at 18%. In the case of a loan against a mutual fund, you can get credit lines at as low as 12%. This is because lenders feel more secure knowing you have assets backing your loan. So, if you're looking to minimize interest costs, this could be a smart route. What more, your credit score is also not mandatory thereby opening up your options for an economical loan !

Retain Ownership of Your Investments

Here's the kicker: you don't have to sell your mutual funds. While you're repaying the loan, your money stays invested. If the market goes up, your mutual funds may gain value, so you could end up in a better financial position when you close the loan. And if the markets do go down, well, you can always reduce your credit limit or simply sell the mutual funds which you anyways would to repay a loan.

Uses of a Loan Against Mutual Funds

What can you do with the money from a loan against mutual funds? The options are pretty flexible! Here are some popular uses:

Emergency Expenses

Life throws curveballs. Whether it's medical bills or unexpected travel costs, a loan against your funds can provide a safety net during tough times. Having a cheap credit line always helps.

A Grand Wedding

Yes you read that right. Grand Indian weddings need a grand celebration. Why allow that to pinch your savings? Keep your mutual funds together and avail a cheap credit line on it.

A top up loan for your home

Banks offer upto 80% of the home purchase cost as a loan. And this is offered at rates ranging from 10-12%. Pledge your mutual funds to get a credit line solving for your down payment and other needs around building your dream home.

Higher Education

You can fund tuition or other related expenses without dipping into your savings, allowing your investments to continue growing. Term fees a pain in terms of generating liquidity? Fret no more, Quicklend is your tool to get a loan against your mutual funds.

Business Ventures

Struggling to get a credit line at a good price? Given the rise in cost of capital, it is a common issue around. Our solution : pledge and get working capital loans at low interest rates.

Things to Consider

While loans against mutual funds sound great, it's vital to understand the risks involved. If you're unable to repay the loan, your mutual funds may be liquidated, leading to potential losses.

Keep It Manageable

Always ensure you can manage your loan repayment alongside your daily expenses. Treat this option responsibly, just like you would when borrowing a favorite book from a friend.

Conclusion

A loan against mutual funds is more than just a financial option; it's a way to unlock value without sacrificing your investments. With quick access to funds, lower interest rates, and the retention of your assets, this kind of loan can fit various financial needs. Always weigh the pros and cons and consider your current situation. It's all about making your investments work for you, and this option could be an interesting tool in your financial toolkit. And get a loan against your mutual fund at Quicklend.