With the explosive growth in digitisation over the years, digital lending has become the new norm as the world moves aggressively towards digital economies.
Digital lending already has many benefits over the traditional model of credit.
Digital loans against Mutual Funds
Digital Loans against Mutual Fund holdings have emerged as a new and easy means to raise funds. For those making sustained investments into Mutual Funds over the years, the redemption of these holdings is no longer the sole option to raise funds during times of finance tightness.
Digital lending against Mutual Funds primarily entails offering loans on an individual or an entity’s Mutual Fund holdings. The Mutual Fund holdings are used as collateral for offering digital loans to the borrowers. These holdings need not be restricted to either Equity Funds or Debt Funds, but both work as collateral. The process is done entirely digitally and therefore; loans are available to those who are into online banking virtually on tap. Based on the Mutual Fund holdings, the loan amount is approved, processed and disbursed directly into the bank account of the borrower. Even as the loans are transferred to the borrower, the Mutual Fund holdings continue to remain in the borrower’s account, though they remain locked for redemption during the tenure of the loan or until the repayment of loans is completed. The client will continue to earn returns on them even if the holdings are locked for sale.
For those seeking urgent working capital requirement or short-term financial needs, this method of borrowing is exceptionally beneficial primarily because of the promptness in disbursal of funds. Interest rates are mainly in the range of 10-12 per cent.
Borrowers will be able to avail loans to the extent of 50 per cent of equity funds and 80 per cent of debt funds, as per the rules laid down by the Reserve Bank of India.
Some of the benefits of Digital Loans against Mutual Funds:
- Loan process and disbursal are done entirely digitally
- Minimum or zero paperwork, making the process of Digital Loan approval and disbursal easier, quicker and transparent
- With Mutual Fund holdings as collateral, loans can be accessed in a matter of a few hours.
- Mutual Fund holdings to remain in borrowers’ account but will not be available for redemption during the tenure of the loan
- Digital Loans available on both Debt and Equity Mutual Fund holdings
Earlier this year, HDFC Bank launched digital investments on Mutual Funds in partnership with the transfer agent, CAMS. Borrowers can raise funds by pledging Mutual Funds through a quick online process.
* Terms & conditions apply. Digital Loan against Mutual Fund disbursal at sole discretion of HDFC Bank Ltd.
