Can We Get Loan on Mutual Funds? If Yes Then How?

The question of accessing quick cash without disturbing investments is common. The answer is yes. You can borrow against your mutual fund portfolio. This is called a loan on mutual fund. It is a major financial tool. It allows you to access money when you need it most. You do not have to sell your investments. Your funds continue to grow. This method is a form of secured credit. It is a smart alternative to other types of borrowing.

How the Loan on Mutual Fund Works

A loan on mutual fund is simple. You pledge your mutual fund units as collateral. This means the units act as a guarantee for the money you borrow. The lender marks a claim on these units. This claim is called a lien. You cannot sell or redeem the pledged units while the loan is open. However, you continue to own the units. You continue to earn any returns or dividends they generate. This is the main benefit. You get cash now. Your investments keep working for your future goals.

The Advantage Over Personal Loan Apps

A loan on mutual fund is often a better choice than using a personal loan app. The biggest difference is the interest rate. Personal loans are unsecured. They do not require collateral. They carry higher risk for the lender. As a result, personal loan interest rates are often high. They can range from 12 percent to 24 percent or more.

A loan against mutual funds is secured debt. It is backed by your investment portfolio. Because the risk is lower, the interest rates are much lower. They typically start around 10.5 percent to 12 percent. This is a significant saving over time.

Key Differences in Practice

A personal loan app is fast. It is easy. But it can create heavy debt due to high interest. It is best for someone who has no assets to pledge. A loan against funds is a strategic choice. It is best for someone who has built up a strong investment portfolio.

The loan on mutual fund offers other benefits. It allows you to maintain your long-term investment strategy. You avoid selling funds when the market is low. Selling at a low price locks in losses. Taking a loan avoids this problem. The investment continues to grow. This dual benefit makes the loan a powerful financial tool. It is perfect for short or medium-term financial needs. It allows the investor to be smart with their assets.

Managing the Secured Loan

It is important to manage this loan well. The investor should only pay interest on the amount used. They must remember that the pledged funds cannot be sold. They are locked until the loan is closed. If the market value of the pledged funds drops significantly, the lender may ask for more collateral. This is called a margin call. The investor must then pledge more units. They must deposit cash. If the investor fails to repay the loan, the lender can sell the pledged mutual fund units. This allows the lender to recover the outstanding balance. Managing the loan is simple. It requires timely interest payments. It is a good way to use your investments wisely.