Loan Against Mutual Funds

Unlike traditional personal loans that are based on your credit history and income LAMF or Loan Against Mutual Funds uses your mutual fund investments as collateral. This means you can borrow money without selling your investments allowing you to keep your long term investment plans unchanged.

What is a Loan Against Mutual Funds?

If you need to borrow money and have investments in mutual funds, you can use these as collateral to secure a Loan Against Mutual Funds. This type of loan works like an overdraft facility allowing you to withdraw and repay money whenever needed, without extra charges. Interest is charged solely on the amount you borrow and only for the duration you use it. This way you can access funds quickly and flexibly without selling your investments.

Who can apply for a Loan Against Mutual Funds?

• Indian nationals between the ages of 18 and 75 with a credit score of at least 500 or those new to credit are eligible to apply.
• A single PAN card can have up to two loan accounts one for equity mutual funds and one for debt mutual funds.
• Eligible entities include Indian residents, NRIs, individuals above 18 and owners of partnership firms, private trusts or companies.
• Residents of India aged 18 + can apply for loans up to ₹5 Crore against approved mutual funds held with CAMS or KFintech.
   

How Does Loan Against Mutual Funds Work?

When you take a loan against your mutual funds the amount you can borrow depends on the type of mutual funds you own and the bank's policies. Your mutual fund units are used as collateral which means the bank holds them until the loan is repaid. Despite this your investments in the mutual funds continue to grow as normal.

Once you repay the loan the bank releases its hold on your mutual fund units. However, if you default on the loan the bank can sell your mutual fund units to recover the loan amount. This way your mutual funds act as security for the loan ensuring that the bank can recover its money if you are unable to repay.

Benefits of Taking a Loan Against Mutual Fund

Taking out a loan against your mutual funds online can be a smart move for investors. Here's why:

1. Your investments keep growing while you borrow against them. You don't have to sell your mutual fund units, so they can still make money for you.

2. These loans often have lower interest rates because they're backed by your mutual funds. This makes them cheaper than other types of loans.

3. Getting this loan won't hurt your credit score much if you handle it responsibly. Repaying the loan on time can also help enhance your credit history.

4. You can get the money quickly with minimal paperwork. This is handy for emergencies or opportunities you don't want to miss.

5. You can use the loan for anything you need like medical bills, weddings or education. It's flexible and can cover a variety of expenses.
 

Documents are required to apply for a Loan Against Mutual Funds

To get a loan against your mutual funds you'll need to provide a few documents:

1. PAN card: This is your identification for tax purposes.
2. Recent photograph: Just a current picture of yourself.
3. Proof of identity: Any government issued ID like Aadhaar card, passport or driver's license.
4. Proof of address: Something that confirms where you live like a utility bill or rental agreement.
5. Bank account proof: A statement or passbook showing your bank account details.
6. Demat account proof: Documentation related to your dematerialized (electronic) securities account.
7. Mutual fund holding statement: This shows the details of the mutual funds you own.
8. Income proof: Any document that verifies your income like salary slips or tax returns.

These documents help the lender assess your eligibility and the value of your mutual fund holdings for the loan.
 

How to Apply for Loan Against Mutual Funds?

1. Go to your bank’s website.
2. Log in to your online banking.
3. Look for the option related to Demat accounts.
4. Find the section for making requests.
5. Choose the option to apply for a loan using your securities.
6. Now, you'll be directed to log in to your CAMS account using your online banking details.
7. Choose the mutual funds you want to use as collateral for the loan.
8. To confirm and activate the loan, you'll receive a one time password for security.
 

Demat accounts Difference Between Loan Against Mutual Funds & Personal Loan

Loan Against Mutual Funds provides several important benefits that make it a desirable option for people who need quick access to cash. The table below outlines some key features, including what documents you need:

Conclusion

A loan against mutual funds is a great option if you need cash quickly without touching your investments. It has lower interest rates and gives you flexibility. Plus you can still earn money from your investments while you have the loan. Compared to other types of loans, it helps you manage your immediate money needs while keeping your long term investment plans on track.