A Loan Against Mutual Funds allows you to leverage your mutual fund investments as collateral to secure a loan. Here’s how it generally works:

1. Pledge of Mutual Fund Units

   • You pledge your mutual fund units (equity, debt, or hybrid) as collateral for the loan. The lender assesses the market value of the pledged units to determine the loan amount.

2. Loan Amount

   • Lenders typically offer a loan amount up to 50-75% of the current market value of your mutual fund holdings, depending on the type of mutual fund and the lender’s policies.

3. Interest Rate

   • Loan against mutual funds generally comes with lower interest rates than unsecured loans since the investment is used as collateral. Rates are often fixed or floating depending on the lender.

4. Loan Tenure

   • The repayment tenure can vary from 1 to 5 years, and you repay the loan through monthly installments (EMIs).

5. No Need to Liquidate Investments

   • One of the key benefits of this loan is that you don’t have to liquidate your mutual fund investments. You can continue to hold them and benefit from any potential appreciation, dividends, or capital gains during the loan tenure.

6. Repayment Flexibility

   • You can choose flexible repayment options, and some lenders may allow you to prepay the loan without penalties.

7. Risk of Default

   • If you fail to repay the loan, the lender has the right to sell your pledged mutual fund units to recover the outstanding dues.

8. Documentation and Process

   • The process typically requires minimal documentation. You'll need to submit KYC documents, proof of mutual fund holdings, and income proof to apply.

In summary, a loan against mutual funds is a convenient way to access funds without disturbing your long-term investment goals, with the loan amount being based on the value of the mutual fund units you pledge.

To qualify for a Loan Against Mutual Funds, lenders typically evaluate various factors. The general eligibility criteria include:

1. Age Criteria

   • Minimum Age: 21 years.

   • Maximum Age: 65 years (at the time of loan maturity), depending on the lender's policies.

2. Type of Borrower

   • Individual Borrowers: Both salaried and self-employed individuals are eligible to apply for the loan.

   • HUF (Hindu Undivided Family) and business entities may also be eligible, depending on the lender's terms.

3. Mutual Fund Holdings

   • The applicant must hold mutual fund units with a recognized asset management company (AMC). The lender typically accepts both equity and debt mutual funds as collateral.

   • The mutual funds should be in the borrower’s name and must be in dematerialized form (electronic form).

4. Loan Amount

   • The loan amount offered is generally up to 50-75% of the current market value of the mutual funds pledged, depending on the type of mutual fund and lender's policies.

5. Income Requirements

   • The borrower must have a stable income to ensure the ability to repay the loan. Income proof such as salary slips, bank statements, or tax returns is required.

   • Self-employed individuals or business owners may need to show business financials or IT returns.

6. Credit Score

   • A good credit score (typically above 650-700) is often required to qualify for favorable interest rates.

7. Mutual Fund Type

   • Lenders may have specific policies regarding the type of mutual funds eligible for pledging, with equity funds typically being more accepted for higher loan amounts, while debt funds may have lower loan limits.

8. Debt-to-Income Ratio

   • The borrower’s debt-to-income ratio should be within acceptable limits to ensure they can manage the additional loan repayment.

9. Residency Status

   • The applicant must be a resident of India. Non-Resident Indians (NRIs) may also be eligible, but additional documentation may be required.