Importance of Mutual Funds in Medical Emergency

Medical emergencies are one of the most challenging situations to deal with; not only do they cause a lot of mental stress, but their sudden occurrences often result in significant financial pressure. Road accidents, heart attacks, cerebral strokes, or a freak slippage in the bathroom resulting in a hip dislocation, can all happen without warning. And if you are not prepared, it could mean dipping into your savings to meet costs for doctor consultations, medicines, hospitalisation, tests, surgeries or other medical procedures. 

Loan against Mutual Funds (LAMF)

At times like these, many people choose to meet the crisis by taking a loan if they fall short of funds. For instance, you can approach the bank for a personal loan or a medical loan, which is a variant of a personal loan. However, there is another option you can consider - a loan against Mutual Fund units (LAMF). 

The process is similar to the overdraft facility that banks offer against fixed deposits (FD), wherein you can make a withdrawal without disturbing the FD, but instead pledge it. This is called an overdraft, which is lower than the FD amount.

Similarly, with the LAMF, you can take a loan against equity or hybrid Mutual Funds from a bank or an NBFC (Non-banking financial company). Here, instead of the fixed deposit amount, you pledge your Mutual Fund units as security against the loan.

LAMFs are not often spoken of because of a general lack of awareness about them. But in many cases, they can be a better option than traditional loans for various reasons. But first, it is essential to understand a little more about LAMFs.  

Factors determining the loan amount

The amount of loan that you will be entitled to will depend on the type of Mutual Fund you own - the value of the units and the loan tenure. For instance, if you hold equity-based funds, you can be sanctioned a loan amount close to 50% of the Net Asset Value (NAV) of the funds.

Banks often have an upper and lower limit for the loan amounts that you can apply for. At HDFC Bank, the minimum loan amount you can get against Mutual Funds is Rs 1 lakh for both equity and debt funds, while the maximum is Rs 10 lakh against the former, and Rs 1 crore against the latter. The amount sanctioned is usually up to half the value of your Mutual Fund's portfolio. 

Advantage of LAMF

With LAMF, your portfolio remains intact; the process does not require you to redeem your units prematurely. This means you can continue with your Systematic Investment Plan without disruptions.

LAMF has several benefits:

  • You are assured of instant liquidity, which is a significant advantage during a medical emergency

  • It is an ideal way to utilise Mutual Fund investments that are idle

  • The interest rates for LAMFs can be lower than that for personal loans, which can often go up to as high as 21%

  • You do not have to sell your units and liquidate your investments for LAMF. In other words, your fund ownership remains intact, and your financial plan will continue on course.

HDFC Bank Digital LAMF

Suppose a loved one is admitted in the hospital and requires immediate treatment, but you are low on funds. Going to the bank during a critical time like this, spending time completing the various formalities and waiting for a loan can prove to be troublesome. This is where a Loan Against Mutual Funds can come in handy. 

To make loan accessibility easy, quick and convenient during needy situations, HDFC Bank has partnered with Mutual Funds transfer agent CAMS to make the loan process entirely online. This means HDFC Bank customers can avail LAMF digitally; reducing a process that usually takes five to six working days to just a few minutes. In fact, under the current HDFC Bank Summer Treats offer, the loan against your Mutual Funds will be disbursed to your account instantly. The processing fee for this is a minimal Rs 750 plus taxes, and the interest you pay will only be on the amount utilised. This way, you can rest assured that with HDFC Bank, you can make your investments work for today’s needs. 

Availing HDFC Bank-CAMS MF loan

Digital loans against Mutual Funds can be availed in three steps via NetBanking:

Step 1: Log in to myCAMS via HDFC Bank's NetBanking portal and select the Mutual Funds from your portfolio that you want to pledge

Step 2: Click on 'loan terms and conditions'

Step 3: Key in the one-time password (OTP), and the loan amount will reach your account in under three minutes

During a medical emergency, this facility can be a lifesaver. So, the next time you require urgent funds, you can turn to your Mutual Funds for relief. And with HDFC Bank Digital LAMF, getting a loan is easier and quicker than you could have imagined! 

* The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.