You can avail loan against your mutual funds from banks as well as NBFCs. This loan is in the form of an overdraft facility and charges interest only on the amount you use as credit.

Now a days, loan against mutual funds is a versatile option for borrowers. It provides security as well as expensive in comparison to other types of loans available in the market.

Consider the following factors while you apply for a loan against mutual funds:

• All mutual fund units are not eligible for a credit. A list of approved mutual funds is available with every lender.

• Your loan request will get a consideration only after you write a lieu of your units in the name of the lender.

• You may get funds up to 50-60% of the value of the equity type mutual fund units and up to 75-80% in case of debt type mutual fund units.

• Almost all banks and some NBFCs having assets more than Rs. 100 crores offer loan against mutual funds.

• You cannot redeem your MF units during the loan tenure but may continue to receive dividends.

• If you default in repaying the loan, the lender can invoke the lien and instruct mutual fund Company to redeem your units for loan repayment.

It would help if you adequately consider these critical factors before deciding to go for a loan against mutual funds.    

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