Can I Get a Loan Against Mutual Funds Without Liquidating My Investments?

Yes, several banks and Non-banking Financial Companies (NBFCs) offer the option of taking a loan against your mutual fund portfolio without needing to redeem the units or withdraw your investments.

With a loan against mutual funds, the units are pledged in favour of the loan provider as collateral. However, the ownership remains with the investor throughout the loan tenure, and investments stay in your account while lending against their value.

You can service interest and principal repayment through regular instalments like other loans. On closure, the lien on units is released automatically without impacting your portfolio.

Such loans offer several advantages that make them a flexible financing option. Here are a few benefits:

• Avail liquidity without disturbing goal-based investments.
• Retain opportunity for potential capital appreciation on units.
• Use dividends received to service loan repayment instalments.
• Consolidate multiple loans at lower interest rates by pledging portfolio.

While this is an attractive option, certain aspects should be evaluated carefully such as:

• Loan costs, including interest rates and processing fees
• Risk factors associated with market fluctuations affecting the value of pledged units
• Loan tenure in alignment with repayment capabilities and investment goals
• A significant investment corpus typically helps increase loan eligibility while safeguarding a portion of the portfolio from lending risks.