Money emergencies do not knock before they arrive. In such times, selling your investments might seem like the only solution. But is it? If you have mutual funds, there is a smarter option. You can choose to take loan against mf instead of selling them.
This arrangement lets you meet your financial needs while keeping your investment intact. It sounds convenient, but is it the right step?
You will find out below. Let us break it down for you.
What Is A Loan Against MF?
When you pledge your mutual fund units and borrow money from a lender, that is a loan against MF. You do not need to sell them. The lender gives you a percentage of the value of a loan, usually around 60 to 70 percent.
Your funds stay invested. You still earn returns. But the units remain locked till you repay the loan.
When It Can Be A Smart Choice
- Short-term needs: You can use it for education, medical bills or travel.
- Better than breaking an FD: You avoid penalties and loss of returns.
- Quick processing: Many lenders offer instant disbursals for such loans.
- Low interest compared to personal loans: Rates are often more affordable.
If your goal is to manage a short-term crunch without hurting your long-term investment plan, this works quite well with personal loan app.
Watch Out For These Risks
- Market risks: If the value of your mutual funds drops, your lender can ask for more margin or sell your funds.
- Limited access: Not all mutual fund types qualify. You need to check if your portfolio is eligible.
- Interest cost: It is cheaper than personal loans, but not free. If you delay payments, interest adds up.
Who Should Consider This Option?
If you are someone who understands markets and keeps a regular eye on finances, this is a good move. Also, if you expect to repay the loan in a few months, then it makes even more sense.
On the other hand, if you are unsure about your repayment timeline or not very involved with your mutual fund management, this may not be ideal.
It is important to have a clear purpose before going ahead. Just because money is easily available does not mean you should borrow casually.
Tips Before You Apply
- Check the latest value of your mutual fund units.
- Compare interest rates from different lenders.
- Read terms regarding loan margin and repayment rules
- Keep a repayment plan ready before borrowing.
- Avoid using this option for spending on luxuries.
Being mindful keeps you safe from financial stress later.
Final Take
So, is it wise to take loan against MF? Yes, it can be. But only if used right. It is a tool that works best when you have a short-term need and want to keep your investment portfolio untouched.
Used carelessly, it can also lead to trouble. Think it through. Ask yourself why you need the money and how soon you can return it.
This way, your investment works double. It grows in value and helps you in emergencies too.