What is a Loan Against Mutual Funds? – Types and Application Process

Loan Against Mutual Funds is a type of loan where you can get money from a bank by pledging your Mutual Fund investments as collateral, without having to sell them. The loan amount is decided by the value of your Mutual Fund holdings. The interest rate of this loan is often lower than those of unsecured loans.  In this blog post, we will discuss about what a Loan Against Mutual Funds is, its benefits, types and how to secure it.

Advantages of a Loan Against Mutual Funds

Following are some advantages of availing a Loan Against Mutual Funds:

Lower Interest Rates

A Loan Against Mutual Funds may come with comparatively lower interest rates than unsecured loans since it is backed by your investments, making it less risky for lenders. However, the exact interest rate can vary based on the lender’s terms and the type of Mutual Funds pledged.

No Need to Sell Your Investments

The best part about taking a Loan Against Mutual Funds is that you can get access to cash without selling your investments outright. Your Mutual Fund units keep earning returns for you. So, even if you have a loan going on against them, you can still see an increase in the value of your investments.

No Proof of Income Needed

As your investments serve as collateral for the loan, lenders may not always require extensive financial documentation or income proof. However, requirements can vary depending on the lender’s policy and the type of Mutual Funds pledged.

Loan Against Mutual Funds as an Overdraft

You can withdraw money from your overdraft account up to a set limit based on the value of your Mutual Fund investments. This makes it an affordable choice, as you only pay interest on the amount you use instead of the total limit available to you. For instance, if you have a Mutual Fund portfolio worth ₹ 10 lakh, you might get an overdraft limit of ₹ 5 lakh for Equity Funds or up to ₹ 8 lakh for Debt Funds. If you withdraw (i.e. use) only ₹ 2 lakh of this limit, you will have to pay interest only on ₹ 2 lakh.

Application Process for Loan Against Mutual Funds from ICICI Bank

Using Internet Banking  

• Log in to your Internet Banking dashboard with your User ID and password

• Head over to the section named 'Loans' and click 'Apply Online'

• Select Loan Against Mutual Funds

• Make sure to include all the information that the Bank needs and the FATCA (Foreign Account Tax Compliance Act) details

• Choose the Mutual Fund category for lien marking

• Determine the loan amount for your application. You can use the system to estimate how much you can borrow by considering the worth of your Funds and the Loan-to-Value Ratio set by the Bank

• After your loan gets verified, you will have access to the funds through your new overdraft account. 

Using iMobile App

• Download and log into the iMobile app

• Find the section labelled ‘Get Instant Loans / Offers’, then choose ‘Loan Against Mutual Funds’

• Mobile OTP VERIFICATION

• Enter Loan and additional Details

• Make sure to include all the information that the Bank needs and the FATCA (Foreign Account Tax Compliance Act) details

• Choose the Mutual Fund category for lien marking

• Determine the loan amount for your application. You can use the system to estimate how much you can borrow by considering the worth of your Funds and the Loan-to-Value Ratio set by the Bank

• After your loan gets verified, you will have access to the funds through your new overdraft account

Conclusion

A Loan Against Mutual Funds is a great way to borrow funds without compromising your investments. However, it's important to borrow responsibly and put the money to good use. Always make timely repayments to protect and enhance your credit score.

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