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Which Bank Gives Loans Against Mutual Funds?

divyanegi

December 2, 2024

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A loan against mutual funds is a financial facility offered by banks and non-banking financial companies (NBFCs) where you can pledge your mutual fund investments as collateral to borrow money. This type of loan is gaining popularity due to its flexibility, quick processing, and the ability to retain ownership of your investments. Let’s explore which banks provide loans against mutual funds, their features, eligibility criteria, and the process involved.

Banks Offering Loans Against Mutual Funds

1. HDFC Bank
   • Features:
     • Provides an overdraft facility.
     • Loan amount ranges from ₹50,000 to ₹10 crore.
     • Quick disbursal with minimal documentation.
   • Interest Rate: Competitive, based on the loan amount and tenure.
   • Eligibility: Must hold mutual funds with HDFC Bank’s partnered registrars such as CAMS or Karvy.
   • Repayment: Flexible repayment options based on overdraft utilization.
2. ICICI Bank
   • Features:
     • Offers loans against mutual funds as an overdraft.
     • Online application process with instant approval in some cases.
   • Loan Amount: Minimum ₹50,000 with no upper cap, subject to the value of pledged mutual funds.
   • Eligibility: Mutual funds should be held in demat form through CAMS or KFintech.
   • Interest Rate: Varies based on fund type and tenure.
3. Axis Bank
   • Features:
     • Provides loans against both equity and debt mutual funds.
     • Fast processing with digital pledging.
   • Loan Amount: Up to 50% of the value of equity funds and 80% of the value of debt funds.
   • Eligibility: Available to existing Axis Bank customers holding mutual funds via CAMS/KFintech.
   • Interest Rate: Market-linked and negotiable.
4. SBI (State Bank of India)
   • Features:
     • Offers loans against mutual funds held through partnered registrars.
     • Attractive interest rates and a simple documentation process.
   • Loan Amount: Determined based on mutual fund portfolio value.
   • Eligibility: Available to individuals holding mutual funds with linked demat accounts.
   • Repayment: Tenure can vary depending on the type of mutual funds pledged.
5. Kotak Mahindra Bank
   • Features:
     • Specializes in loans against securities, including mutual funds.
     • Loan disbursal is fast and requires minimal paperwork.
   • Eligibility: The mutual funds need to be held in demat form.
   • Interest Rate: Competitive rates, negotiable for high-value loans.
6. IDBI Bank
   • Features:
     • Provides loans against a variety of mutual funds.
     • Offers both term loans and overdraft facilities.
   • Loan Amount: Up to 70%-80% of the mutual fund’s NAV (Net Asset Value).
   • Eligibility: Individuals with mutual funds in partnered registrars can avail of this facility.
   • Interest Rate: Dependent on mutual fund type and tenure.
7. Federal Bank
   • Features:
     • Offers flexible loans against both equity and debt mutual funds.
     • Loan tenure is customizable based on the customer’s requirements.
   • Loan Amount: Determined as a percentage of the NAV.
   • Eligibility: Mutual funds should be held with CAMS or KFintech.
   • Interest Rate: Competitive and depends on the loan tenure.

How Loans Against Mutual Funds Work

1. Pledging Mutual Funds: The mutual funds are pledged as collateral to the bank. The ownership remains with the investor, but the bank places a lien on the units.
2. Loan Amount Determination: The loan value is determined based on the type of mutual funds:
   • Equity Mutual Funds: Loan-to-Value (LTV) ratio of up to 50%.
   • Debt Mutual Funds: LTV ratio of up to 80%.
3. Disbursement: Once approved, the loan amount is disbursed either as an overdraft or a term loan.
4. Repayment: You can repay the principal amount and interest within the loan tenure. In case of default, the bank can liquidate the pledged mutual funds.

Advantages of Loans Against Mutual Funds

1. Ownership Retention: Investors retain ownership of their mutual funds.
2. Quick Disbursal: Faster processing compared to traditional loans.
3. Lower Interest Rates: Generally lower than personal loans or credit card debt.
4. Flexible Repayment: Based on overdraft utilization or fixed tenures.

Eligibility and Documents Required

• Eligibility:

  • Applicant must hold mutual funds in a demat form.
  • Mutual funds should be held through partnered registrars such as CAMS or KFintech.
  • Banks may require the applicant to be an existing customer.

• Documents:

  • Proof of identity (Aadhar card, PAN card, etc.).
  • Proof of address.
  • Mutual fund portfolio statement.
  • Bank statements (if required).

Steps to Apply

1. Contact the Bank: Reach out to the bank offering the facility.
2. Submit Required Documents: Provide the necessary documents for verification.
3. Lien Creation: The bank creates a lien on your mutual fund units.
4. Approval and Disbursal: Post verification, the loan amount is approved and disbursed.

Things to Keep in Mind

• Ensure the mutual funds pledged are not locked in (e.g., ELSS funds with a 3-year lock-in).
• Understand the LTV ratio to estimate the loan amount.
• Compare interest rates and processing fees across banks for better deals.
• Keep track of your loan tenure to avoid defaults and liquidation of pledged funds.

Conclusion

Several banks, including HDFC Bank, ICICI Bank, Axis Bank, SBI, and others, offer loans against mutual funds. These loans provide a convenient financial solution while retaining investment ownership. By pledging your mutual funds, you can access funds quickly with flexible repayment options. However, it’s essential to evaluate the terms and conditions of different banks to find the best fit for your financial needs.