FinEzzy logo

Loan Against Mutual Funds or Redemption: Which is better?

Tips to increase CIBIL score

Imagine this: You are in a tight spot, urgently needing funds. Borrowing from family or friends isn’t an option, but fortunately, your investments in Mutual Funds have grown, providing you with a financial lifeline.  

Now, you’re faced with a dilemma: cash out your assets or leverage them for a quick loan against Mutual Funds.  

Option 1: Cashing Out Assets 

Cashing out assets entails liquidating your Mutual Fund investments to obtain immediate funds. However, this process typically takes 2-3 days to complete. While it provides quick access to money, it comes at the expense of potentially impacting your long-term investment strategy. 

Option 2: Loan Against Mutual Funds (SIP) 

On the other hand, leveraging Mutual Funds for a loan, commonly known as a loan against SIP or loan against Mutual Funds, offers a swift solution to your financial predicament. With this option, you can obtain a loan within 15 minutes by pledging your Mutual Fund units as collateral.

This allows you to retain ownership of your investments while accessing much-needed funds in a timely manner. 

While the latter option seems enticingly speedy, let’s not rush into a decision based solely on expediency. Instead, let’s weigh the pros and cons of both scenarios to make an informed choice. 

Factors Cashing Out Assets Loan Against Mutual Funds (LAMF) 
Time to Access Funds 2-3 days Within 15 minutes 
Impact on Investments Assets liquidated Mutual Fund units remain intact 
Interest Rates N/A Starts just at 7.46% P.A. 
Credit Score Impact N/A May not affect credit score 
Costs and Fees Redemption charges, taxes Processing fees, interest charges 
Flexibility Limited Flexible repayment terms 
Market Conditions Potential realization of losses Stay invested, potential growth 
Reaping Benefits No ongoing benefits Continued investment growth 

Exploring the Factors: 

  1. Time to Access Funds: Selling out assets might require two or three days, while a Loan Against Mutual Funds offers close quick admittance to reserves, making it ideal for dire monetary necessities. 
  1. Impact on Investments: Redemption can disrupt your long-term investment strategy, though LAMF helps you to keep up with ownership of investments while getting funds.  
  1. Interest Rates: LAMF ordinarily offer competitive interest rates, making them a practical choice compared to other types of loans.  
  1. Credit Score Impact: LAMF might not directly affect your credit score, offering a suitable arrangement without endangering your reliability.  
  1. Costs and Fees: While redeeming, think about any related expenses, for example, reclamation charges or assessments, which can lessen the amount received. But a Loan Against Mutual Funds might include handling expenses or interest charges, yet these are often lower than different types of credit options.  
  1. Flexibility: LAMF offers adaptability in repayment terms and amount, allowing you to fit the credit to your requirements and situation. This flexibility can be helpful in overseeing income and planning efficiently. 
  1. Market Conditions: Consider the ongoing economic situation and possible effects on your investments. Redeeming your funds during a downturn might bring losses, while LAMF helps you to stay invested and possibly benefit from market recuperation.  
  1. Reaping Benefits: By choosing Loans against Mutual Funds, you can keep on profiting from continuous growth, guaranteeing that your monetary future remains secure while addressing current requirements.  

While the immediacy of getting funds might appear to be tempting, it’s basic to think about the long-term implications and calculate the advantages and disadvantages of every choice. While selling out Mutual Funds gives fast access to reserves, it comes at the cost of potentially disrupting your investment strategy.

Then again, utilizing leveraged Assets for a credit offers a quick and effective arrangement without undermining your long-term financial objectives. 

Eventually, opting for a Loan Against Mutual Funds (LAMF) emerges as the wise choice. With LAMF through FinEzzy, you retain ownership of investments while swiftly accessing funds, ensuring both immediate needs and long-term financial stability.

By carefully evaluating the factors discussed and considering your individual circumstances, you can make a well-informed choice that aligns with your financial objectives and secures your financial future. 

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.