When investing in the stock market, the vast variety of sources and avenues might confuse you easily. Sources like equity can get you great returns, but also come with high volatility which might result in capital loss. On the other hand, there are SIPs that offer steady returns but can take a lot of time to give you returns like Equity funds. If you want good and steady returns within a short period of time, without the high risk of losing your capital, you can consider investing in mutual funds.
Mutual funds are an investment scheme that collects money from different investors to invest in stocks, bonds and money markets. The investments made by the investors is administered and managed by fund managers who allocate the funds for capital gains.
Mutual fund are also known for being eligible as loan collateral, which is a big plus point for active investors. When investing in the stock market, you need to have a constant flow of money to support you during emergency. There are times when the stock market declines at a rapid rate resulting in tremendous loss. Most of the investors take different types of loans to support their investments, but they fail to realise the opportunity they have with them throughout.
Personal loans might not be able to offer you the amount you need and mortgage loans can take a lot of time to get sanctioned, whereas, in the world of stock trading, you need to have financial funding under your sleeves. In such situations, you can opt for a loan against mutual funds.
A large number of banks and NBFCs are now offering loans by keeping mutual fund portfolio of the applicant as security. There are numerous reasons that make loan against mutual funds much more feasible than other lending products, but here are some of the important reasons that emphasize on why you should choose it among the others.
- Loan amount: As an investor, you might need a loan that offers a high loan amount. In loan against mutual funds, you get the benefit of availing loan amounts up to INR 6-8 lakhs.
- List of collaterals: Lenders offer loan only on particular investment instruments like Insurance Policies, Non-convertible Debentures, NABARD Bonds, UTI Bonds, Mutual fund units, Demat Shares and National Savings certificate or KVP (in Demat form). It is important that you refer to your lender’s collateral list before applying for a loan.
- No EMIs or Postdated cheques: There are some banks and NBFCs that offer these loans in the form of an overdraft or current account. Here, the credit is secured by the collaterals you keep with the lender and this is why you get a lower interest rate. Moreover, the interest is levied on only for the time you take to repay the loan.
- No pre-payment charges: With loan against securities, you don’t have to worry about the pre-payment charges. As the loan is granted on the guideline similar to an overdraft, you can repay the loan anytime you want.
- Charges and fees: With so many benefits being offered, there is one setback that you might have to suffer – charges. Loans come with charges like processing fee, annual maintenance fee and sometimes closure charges, but in loan against securities, there are many other charges that you have to pay apart from them. First of all, you will be charged a processing fee of 0.15 percent to 1 percent. Then you might have to pay the pledge and de-pledge fee, which is followed by the renewal charge or the annual maintenance charge which can range from INR 1000 to 10000. You might also have to pay ATM facilities, cash deposits or withdrawals, NEFT or RTGS charges.
To understand equity and other investments better or to know more about loan against mutual funds, you can contact our team of experts.