When you are young and want to test waters in equities as an asset class, mutual funds are considered the best bet. This is because they give you exposure to equities without you having to bother about buying and selling at the “right time” and you can create wealth over the long term as they are managed by market experts called fund managers.
The job of a fund manager is to see that the scheme that you have invested in performs better than the benchmark it is compared to, and more often than not, they are successful in their objective. As a result, you end up receiving returns that are inflation adjusted with the minimum amount hassle and over time you can see your returns compound to create wealth.
But what happens, when despite the best attempts at planning your life and allocating finances accordingly, things go haywire and you suddenly find yourself in a situation when you are face to face with an emergency? Would you then redeem your MF units to fulfil this immediate need? Well, you do not need to, if you consider pledging your mutual fund units instead of redeeming them.
Let us take you through the process of pledging your mutual fund units to get a quick and easy loan.
Benefits Of Taking A Loan Against Mutual Fund Units :
- A loan against mutual fund is a perfect way to meet short term financing requirements by pledging investments that are otherwise lying idle.
- Let’s you raise short term capital in a risk free and a hassle free manner
- You need not redeem your units and thus go off track from the financial goals you have set.
Things To Bear In Mind While Pledging Mutual Fund Units
- These are essentially short term loans and the tenure does not exceed one year.
- They should be treated like an overdraft facility
- Financers lend up to a maximum of 70% of the value of the mutual units
- In case of a default, the bank has the right to sell of the units you have pledged
- You can only pledge units of open ended funds. Units of close ended schemes such as ELSS or equity linked savings schemes are not accepted by the banks.
- At the end of the day they are assets and should not be accessed to take a loan against unless in dire straits.
- Pledging securities to get a loan may seem like an easy way out, but should be treated like a last resort.
Your immediate financing needs can be taken care of by a quick and easy personal loan. A personal loan may come at a slightly higher rate of interest (in the range of 13-24%, depending upon your credentials), but does not require you to pledge any collateral or provide any guarantee. If your credit score is good (above the level of 750 out of 900) and your cash flows are in tact you may be eligible to get an immediate personal loan within a matter of minutes and the amount gets transferred to your account within 72 hours.
Thus, personal loans may not be such a bad idea to meet your immediate financing requirements as compared to pledging your investments. But if you are still not comfortable with the idea of borrowing against any collateral, you can go ahead with the pledging of your assets. At RuLoans we are here to provide you any kind of assistance you need to #BorrowRight.