What is a Loan against Mutual Funds

Mutual Funds against Loans, is one type of loan secure loan where you pledge your mutual fund units as collateral and borrow against their value from a Bank or Non-Banking financial Company (NBFC). Basically it is over draft facility where Bank/NBFC sets a specific limit (based on the value of your mutual fund units) up to which you can borrow for a specific time (Usually up to one year).

This so it works like a pre-approved loan. Interest is charged only on the amount utilized and for the period for which the money is borrowed, so since these loans are secured against your mutual fund units, the lender of the money has a lien or right on your units till If you do not repay the loan, they will retain this right and if you do not repay the loan, they can also sell the units when you pledge your mutual fund units to take a loan against them.

In the case of equity funds, they also remain invested in the stock market. Well, this is because when you pledge your mutual fund units to a bank, you allow the bank to sell those mutual fund units and until you commit any default. Your mutual fund investments remain linked to the market and you continue to earn returns on them.

You can use mutual fund units registered with KFINTECH, CAMS and RTS Registrars and Transfer Agents to avail the loans as collateral.