Understanding Loan Against Mutual Funds: Features, Benefits and Limitations

As the name suggests, this financing is taken against mutual fund holdings of a particular individual. Thus, if you are an investor in mutual funds, you can utilise currently available mutual fund units to obtain a loan. In this type of financing type, you offer mutual fund units as collateral and the units are held as security until you repay the outstanding loan in full.

During the loan tenure, the fund units used as collateral will continue to earn returns like before, the only restriction is that you won't be able to sell these units until you repay the loan.

The amount of loan you can obtain depends on the type of mutual fund you have invested in as well as the current loan against mutual fund disbursal rules of the lender. So, do go through the key rules and regulations of the prospective lender before making your decision.

To better understand the key features of a loan against mutual funds, you have to consider the key features of this type of secured loan, such as:

Some of the key benefits of obtaining a loan against a mutual fund instead of an unsecured loan are as follows:

Along with the benefits, a loan against a mutual fund also carries a few limitations. Find about them below: