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If you have not planned your emergency fund properly and suddenly need money, then you do not need to mortgage your gold or land. Your mutual funds can also come in handy in this difficult time. Many banks and non-banking financial companies (NBFCs) are now giving loans against mutual fund units.

After the sluggishness of the last 6-7 months, the stock market has again gained momentum from April. If you have invested in mutual funds in this boom, then the value of your portfolio may have also increased. In such a situation, if you suddenly need money, then you can take a loan by mortgaging your mutual funds.

On which funds can you get a loan?

A loan facility is available on all types of mutual funds, like equity, debt, and hybrid funds. However, only 50 percent of the fund value is available as a loan on equity funds, while this limit can be 75 to 80 percent on debt funds. That is, you will have to keep a 50% margin in equity funds and a 20-25% margin in debt funds.

Which banks are providing this facility?

Major banks like ICICI Bank, State Bank of India (SBI), HDFC Bank, and Bank of Baroda are providing loan facilities against mutual funds. These loans can be approved online in a few minutes, but for this, it is necessary that your savings account is with these banks and it is in a single name. It is difficult to get a loan on a joint account or a joint fund holding.

How much loan will be available, and what are the interest rates?

A maximum loan of Rs 10 to 20 lakh can be availed on equity funds. On the other hand, a loan of up to Rs 5 crore can be taken against debt funds or fixed maturity plans. However, these loans are not cheap. The interest rates of top banks can go up to 11 to 11.75 percent. Also, charges like processing fees, penalty, and GST are applicable.

What happens if the margin falls?

It is necessary to maintain a margin throughout the loan period. If the value of your mutual fund falls and the margin reduces, then you have to deposit money and make up for it. If you do not do this, the bank can sell the units of your funds. In this case, you will also have to pay an additional penalty and charge, which can go up to Rs 5,000.

How to apply and what is the process?

To apply for a loan, you will have to provide your KYC, PAN, Aadhaar, address proof, and mutual fund holding statement. Banks or NBFCs approve loans only based on the registered transfer agent (RTA) of your funds. For example, ICICI Bank and HDFC Bank give preference to CAMS registered funds, while some banks also accept funds from KFintech.

Disclaimer: This content has been sourced and edited from Navbharat Times. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.