Some of the common investment options are fixed deposit and mutual funds. When you face some financial crunch, you can apply for a loan keeping these investments as collateral. As it will be a secured loan, the rate of interest of such loans will be lower. In India, mutual funds are one of the most sought-after investment tools as it provides higher return on investment and helps to get a loan sanction.
How does it work? Mutual funds can be kept an asset and can be utilized to apply for a loan against them. It works by letting an investor apply for a loan while keeping or pledging his/her mutual funds. You need to have a good CIBIL or credit score and have the mutual fund value of certain amount to get the loan approval.
A lender will put a lien on the pledged units of the mutual funds, as these will be sold and recovered by the banks and NBFCs when an applicant becomes a defaulter.
Generally, a loan against mutual funds is sanctioned up to 60-70% of the pledged value of the mutual funds at the time of application.
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