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Dispelling Myths About Loan Against Mutual Funds

In the dynamic world of finance, Loan Against Mutual Funds (LAMF) have created a notable presence in recent times. Their increase in popularity is majorly because of the versatility and ease they bring to the table, particularly when unforeseen financial needs arise.  

But, whenever a financial tool or product starts becoming popular, it often becomes a part of myths and misconceptions. This can cause potential users to hesitate or even miss out on the advantages it offers. Moreover, the resulting confusion can restrict individuals from exploring what could be an excellent financial solution for them.  

It is essential, therefore, to break through these misconceptions and educate oneself with clear, accurate knowledge. This way, investors can not only avoid any myths but also gain full potential of such tools, ensuring they’re making the most informed choices for their financial well-being. 


What is Loan Against Mutual Funds (LAMF)? 

Loan Against Mutual Funds, as the name suggests, is a financial facility that allows you to borrow money by using your mutual funds as collateral. In essence, you’re taking a loan against the value of your mutual fund holdings. 

Now, why would someone opt for LAMF? One of the primary benefits is that it allows you to access funds without actually selling off your mutual fund units. This means that your mutual funds continue to remain with you and have the potential to grow or yield returns even as you utilize the loan for your immediate needs. 

Another notable advantage of LAMF is its relatively hassle-free process. Unlike other loans which might require extensive documentation or longer processing times, loan against mutual funds tend to be quicker since the mutual funds themselves serve as security. 

Furthermore, LAMF offers flexibility. The loan amount is usually a percentage of the value of your mutual fund units, which can vary depending on the type of fund and the lending institution. This means you can get a loan that aligns with your needs without completely leveraging all your investments. 

The Birth of Myths: How Misconceptions Arise in the Financial Sector 

In the world of finance, information flows at a rapid pace. Sometimes, this speed can lead to misunderstandings. New financial products or services often become the subject of chatter, both among professionals and the general public. During these discussions, there’s a chance that information can get twisted, oversimplified, or even exaggerated. 

Another source of misconceptions is the inherent complexity of some financial products. Not everyone has a deep understanding of finance, and when people come across unfamiliar terms or concepts, they might draw conclusions based on partial information or interpret things in a way that isn’t entirely accurate. 

Moreover, the role of media and the internet cannot be overlooked. In today’s digital age, news and views are shared and spread faster than ever. Sometimes, headlines may oversimplify aspects for the sake of grabbing attention. A piece of information, even if slightly altered, can quickly gain traction and be taken as truth by many.  

The consequences of acting on misconceptions in the financial sector can be significant. Making decisions based on incorrect information can lead to financial losses or missed opportunities. Therefore, it’s essential for before making any financial move, it’s wise to gather information from multiple reliable sources. This doesn’t mean that one needs to become a finance expert, but a basic understanding can go a long way. 

Now let’s explore certain myths around LAMF 

Myth 1: LAMF Interest Rates are Extremely High 

Many people believe that taking a Loan Against Mutual Funds (LAMF) means dealing with high interest rates. This misconception might arise from comparing LAMF with other high-interest financial products.  

However, the reality is different. Interest rates for LAMF are typically competitive and may even be lower than some other personal loan products. With FinEzzy, you get a loan against your mutual funds at rates as low as 7.46%. While it’s always a good idea to compare rates, it’s incorrect to assume that LAMF always comes with high interest rates. 

Myth 2: Defaulting Means Losing All My Mutual Funds 

A common fear among borrowers is that if they default on their LAMF, they’ll lose their entire mutual fund investment.  

In reality, if someone is unable to repay the loan, the lending institution might only sell a portion of the mutual funds to recover the due amount. It doesn’t mean you’ll lose all your mutual fund holdings. It’s essential, however, to understand the terms and conditions of your specific loan agreement. While defaulting has consequences, the notion that you’d lose your entire investment is an exaggeration. 

Myth 3: The Entire Mutual Fund Portfolio Needs To Be Pledged 

It’s a common belief that one needs to pledge their entire mutual fund portfolio when taking a LAMF. 

However, this isn’t entirely accurate. Lenders often have specific guidelines about how much of a portfolio can be used as collateral. They might offer a loan up to a certain percentage of the portfolio’s value, ensuring there’s a buffer in case the value of the mutual funds’ declines. This percentage can vary depending on the lender and the type of mutual funds in your portfolio. With FinEzzy, you can avail a loan against your mutual funds upto 95% of your funds value. 

Myth 4: LAMF Requires Lengthy Approval Processes 

A widespread assumption about LAMF is that it involves long, drawn-out approval processes, much like traditional loans.  

However, this isn’t the case. LAMF is typically faster when it comes to approval. Since the loan is backed by mutual funds, which are easily valued and liquidated, if necessary, lenders often feel more secure. This security can result in quicker processing times. Instead of waiting for weeks, as some might think, many find that LAMF approvals can happen in a matter of days.  With FinEzzy, you can get your loan amount disbursed in just 15 minutes. 

Myth 5: LAMF Impacts Your Credit Score Adversely 

The idea that LAMF negatively impacts your credit score is another myth that needs addressing. 

Like any other loan, a LAMF will only affect your credit score if you default on your repayments. Simply taking out a LAMF, in and of itself, doesn’t harm your credit score. In fact, if you’re timely with your repayments and manage the loan responsibly, it can even improve your creditworthiness over time. It’s always essential to understand the terms of the loan and ensure timely repayments. However, the mere act of obtaining a LAMF isn’t a mark against your credit health. 



As we’ve seen, misconceptions, especially about Loan Against Mutual Funds (LAMF), can create unnecessary hesitations.  

The journey of understanding financial products becomes much smoother with trustworthy partners. With FinEzzy, a name synonymous with transparency and efficiency in the financial sector. FinEzzy not only promises but delivers on its commitment to offer quick loan approval processes. When the financial world feels complex and filled with hurdles, FinEzzy stands out, ensuring that the path to obtaining a loan remains as straightforward as possible. 

In wrapping up, the world of Loan against mutual funds, like many financial instruments, is full of potential. However, realizing this potential requires an understanding that goes beyond common myths. It’s about educating oneself with the right information and aligning with partners, like FinEzzy, that prioritize your best interests. Remember, in the world of finance, knowledge isn’t just power; it’s the path to prosperity.

Frequently asked questions

All investments have some risk. But mutual funds try to reduce risk by investing in many different things. So, if one thing doesn’t do well, the other might make up for it.

We tailor our advice and suggestions to your needs. If wealth management is your goal, our algorithms go through millions of data points to come up with suggestions that sit perfectly with your risk appetite, existing financial goals and the prevailing market conditions. If you are interested in credit, we address the need while also ensuring you do not compromise on your broader financial goals.

Most mutual funds let you take out your money when you want. But some might have rules or charges if you take it out too soon.

To start, you can talk to a bank or a financial advisor. They can guide you on how to put your money in a mutual fund.

Yes, there might be some charges. These are for managing the fund and other services. It’s good to ask about these before you invest.

No, you don’t need a lot of money. Many mutual funds allow you to start with a small amount as low as INR 500.