Digital Loan Against Mutual Funds - A Complete Guide

Mutual funds are popular among investors for various reasons – they are an easy way of investing in equity and debt, and professional fund managers maximise returns for you. But, when you need money to meet immediate and urgent requirements, is it a good idea to redeem mutual funds?

Digital Loan Against Mutual Funds

Say you need a substantially large amount of quick cash for a medical emergency, to meet cost overruns during a wedding in the family or to foot the bill for an impromptu holiday overseas. You could, of course, redeem your mutual funds. But you may have invested in mutual funds to meet longer-term goals like having a nest egg for retirement, your child’s education or a home of your own, and may not want to do that. So, how do you live for today while you stay invested in tomorrow?

If you have a good-sized mutual funds portfolio, your best option could be a digital Loan Against Mutual Funds. HDFC Bank is one of the first banks to offer digital Loan Against Mutual Funds in partnership with transfer agent CAMS. You can pledge mutual fund assets online and get an overdraft limit set to your account in only three minutes. Now, enjoy the benefits of instant availability of funds and retention of mutual fund returns without liquidation and more. Live for today while you stay invested in tomorrow!

Steps to avail Digital Loan Against Mutual Funds from HDFC Bank:

  • Log in to your CAMS via NetBanking
  • Select mutual funds you wish to pledge from your portfolio
  • Input One Time Password (OTP) to activate the overdraft facility.

    According to Reserve Bank of India (RBI), you can take up to 50% of your equity funds in loans. The figure goes up to 80% in case of debt funds.

Why Loan Against Mutual Funds is better than redeeming units

You may wonder why to take a digital Loan Against Mutual Funds instead of just redeeming the mutual units. Here are some of the reasons:

  • You may not want to liquidate your mutual fund portfolio to meet short-term cash requirements. If you need money for a few months, Loan Against Mutual Funds is a better choice.
  • There’s no reason to liquidate a mutual fund that has been performing exceptionally well. If you do, you may have to pay more to reinvest since NAVs will rise, thereby causing a loss.
  • You get comparatively lower interest rates on Loan Against Mutual Funds.

When to take Loan Against Mutual Funds?

In what situation is taking a Loan Against Mutual Funds the best option? You might consider redeeming mutual fund units when you need cash in an emergency. However, a fund’s NAV plays an important role in its rate of returns. This affects your decision to redeem especially when the NAV is low. Also, you may have to pay tax on capital gains. This in turn might make you hesitate. There are no clear-cut answers on how you should react, and these could depend on your perceptions and needs.

Taking a digital Loan Against Mutual Funds is comparatively better option than redeeming. The primary reason being, you don’t break your investment. Second, you can get a loan and still benefit from great returns during positive markets.

Some would say that taking a Loan Against Mutual Funds when markets are doing well would be a better choice since you wouldn’t want to liquidate mutual funds at a loss. Others may want to take a Loan Against Mutual Funds when the markets are slow -- why exit when things are going to great? Whatever the situation, there’s always digital Loan Against Mutual Funds for you.

So, why wait? Make your mutual fund investments your real friends in need. Apply now for a digital Loan Against Mutual Funds with HDFC Bank.

Wondering if you are eligible for Loan Against Mutual Funds? Click here to know more.