In today's times, availing a loan against mutual funds has become incredibly easy. Most of the leading financial service providers offer this facility to their customers. A loan against mutual funds is essentially a type of collateral loan where you pledge your mutual fund units to the lender and receive a loan amount equivalent to the market value of those units.
Before you apply for a loan against mutual funds, it is imperative that you evaluate the market value of your mutual fund units. The lender will only lend you up to a certain percentage of the market value of your mutual funds. You can then choose the amount you want to borrow based on your requirements.
Typically, the loan tenure for loans against mutual funds range from one to three years. The interest rate charged by the lender is usually lower than other types of loans, primarily because it is secured against the mutual funds. The lender may also tack on some processing fees or prepayment charges.
It is important to note that you will continue to receive returns on your mutual fund units during the tenure of the loan. It is also essential that you repay the loan and interest in full before the loan tenure ends. Failure to do so could lead to the lender selling off your mutual fund units to recover the outstanding loan amount and interest.
To avail of a loan against mutual funds, you can approach your current financial service provider or any other leading financial institution in the market. Do your research beforehand and compare the various loan products offered by different lenders to choose the one that best suits your needs.
Conclusion
A loan against mutual funds is a great way to monetize your mutual fund investments without having to liquidate them. It is imperative that you conduct due diligence and choose a lender that offers competitive interest rates and terms.
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