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Loans Against Mutual Funds: What Makes it Better Option Than Personal Loan 

Loan against mutual funds

Did you know that borrowing against your mutual fund investments can be a better option than ge­tting a personal loan? Let’s explore­ why this financial choice could be the solution you’ve­ been searching for. 

The­ Financial Challenge 

These­ days, unexpected mone­y needs often arise­. Having quick and hassle-free acce­ss to funds has become crucial, whethe­r it’s for personal necessitie­s, emergency me­dical bills, or a child’s education. In the past, personal loans were the go-to choice. Howe­ver, there’s anothe­r less well-known option that can be more­ advantageous: loans against mutual funds (LAMF). 

Understanding Loans Against Mutual Funds 

Before exploring why loans trump personal loans as opposed to mutual funds, let’s understand LAMF. 

  • Loans against mutual funds allow investors to borrow money equal to the value of their mutual fund funds. 
  • Unlike personal loans, mutual funds have the advantage of providing collateral, eliminating the need to release deposits. 
  • This type of financing offers lower interest rates, better payment terms and flexible approval processes. 
  • Investors retain ownership of their underlying mutual fund with immediate investment. 
  • Loans on mutual funds offer borrowers the flexibility of repayment options tailored to their financial circumstances. 
  • Preserving the integrity and growth potential of the bank enables borrowers to use their assets responsibly. 

Loans against mutual fund allow investors to borrow money equal to the value of their mutual funds. Instead of destroying your mutual funds, you can use them as collateral for the loan. 

Key Features of Loans Against Mutual Funds (LAMF) 

1. Low Interest Rates: Generally LAMFs have interest rates that are less than those of personal loans, which makes them an affordable option for borrowers. With a loan rate as low as 7.46%, borrowers can drastically lower their annual interest payments over the loan term. 

2. Credit Score Independence: The approval of a Mutual Fund loan is not influenced by the borrower’s credit score, in contrast to personal loans. Many people can obtain it, including those with bad credit records, thanks to this feature. 

3. Credit Score Independence: Unlike personal loans, LAMF approval does not depend on the borrower’s credit score. This feature makes it accessible to many individuals, including those with imperfect credit histories. 

4. Streamlined documentation: Mutual Fund Loan streamlines the loan process with minimal documentation requirements. Loyalty checks are usually conducted online, eliminating the need for extensive paperwork typically associated with personal loans. 

5. Flexible loan rates: LAMF provides flexible loan rates, with loan rates determined by the value of the underlying mutual fund. This feature gives borrowers the opportunity to obtain higher loan amounts depending on the performance of their investments. 

6. Customized repayment options: Borrowers get payment flexibility in LAMF. Unlike personal loans, where fixed monthly loan repayments are mandatory, LAMF allows borrowers to pay interest only on a monthly basis, paying off the principal when it suits them 

7. Advantage of prepayment: Mutual Fund loan enables advance payment without additional charges. Borrowers can choose to pay off the principal first, which will lower all interest rates and allow the loan to close faster. 

8. Secure Investment Backup: By using mutual fund holdings as collateral, LAMF provides borrowers with secure loans. This feature gives them peace of mind, knowing that their savings will remain intact by getting the money they need. 

Benefits of Borrowing Against Mutual Funds 

Mutual Fund loans offers a number of important features that make it attractive and affordable for borrowers who need short-term financing. The main features of loans against Mutual Fund like Interest Rates & Disbursal are given in the table below –  

Features Personal Loans Loans Against Mutual Funds 
Interest Rates Often come with high-interest rates, making them expensive Typically offer lower interest rates, saving money in the long run 
Approval Time Lengthy and tedious approval process, involving extensive documentation and credit checks Streamlined approval process, leveraging mutual funds as collateral for swift approval 
Impact on Credit Score Applying can negatively affect credit score Does not impact credit score, secured by mutual fund investments 
Repayment Options Fixed repayment terms Greater flexibility in choosing repayment terms aligning with financial situation 

Mutual credit offers more returns than private loans. From the early approval of low interest rates to the minimal impact on credit scores and flexible repayment options, it is clear why this financing option is gaining traction with investors among experts like Rajesh.  

If you need cash yourself, consider finding out what a loan against a mutual fund and Finezzy might look like. With their transparent loan policies, competitive pricing, and commitment to customer satisfaction, Finezzy is your trusted partner in achieving your financial goals. Unlock the full potential of your savings and get the money you need without compromising your financial stability. 

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.