Loans against mutual funds are very beneficial to investors. Investors get instant cash quickly when they require it, and at the same time, they don’t lose the returns from the mutual funds that they have put as collateral for the loan. Moreover, this is a secured loan, which means the loan against mutual funds interest rate is low compared to other loans, such as personal loans. At this point, it seems like loans against mutual funds are the perfect option to get a loan amount for investors. Still, most of the time, they aren’t understood, especially when you take into consideration the huge potential they offer in the financial market. Through this article, we plan to change that very idea; here, we have busted a few myths about loans against mutual funds so that you, as an investor, can get a clearer understanding.
Myth 1: You put your Mutual Funds at risk:
It’s a common myth surrounding loans against mutual fund companies in India that when you put your mutual funds as collateral, they don’t remain in your name. That’s a myth; despite it being used as collateral, you can continue to earn returns from the mutual funds. When the fund continues to appreciate anything, dividends or returns are still accrued to the investor. The real risk here is when you default on your payments, which is common among all loans. You will lose a part of the mutual funds if you default on your payment.
Myth 2: Loans against mutual funds have a high interest rate
This, too, is a myth; when it comes to loans against mutual funds, the interest rate is lower than other loans since this loan is a secured loan since a tangible asset, aka your growth mutual funds, has backed them. Providing the leader with an asset reduces the lender’s risk, which is reflected in the form of a more favorable interest rate. It is important to address this misconception as it prevents investors from taking advantage of cost-efficient borrowing methods. Knowing that these loans can help you save money aids with better financial management.
Myth 3: Applying for an instant loan against mutual funds is a complicated process
Many financial institutions now offer loans against mutual funds. The application process, too, is digital and user-friendly, which gives you access to cash instantly without the hassle of traditional loan applications. Financial institutions have made this process easier by including minimal paperwork, and the evaluation of the mutual funds unit is most automated, which speeds up the approval process. The reason to bust this myth is that investors see this as a bureaucratic hurdle. But now you can consider loans against mutual funds as an option over others, especially in a volatile market where the selling might not be as favorable.
Myth 4: Loan against mutual funds is suitable only for short-term financial needs
While loans against mutual funds are usually ideal for short-term needs, the terms of the loan can be modified and adjusted for a longer period of time. This depends upon the borrower’s capacity to repay the loan and the lender’s offerings. This makes it suitable for both cash flow issues and long-term financial planning.
Myth 5: It is only available for a large sum of money
The amount you borrow is flexible, which ranges from 50% to 80% of the total value of the mutual funds and also on the lender’s policy. So, depending on the mutual fund’s value, you can get both a small or a large sum of money. This is a great solution for various financial needs, from covering an unexpected expense to financing a large project.
In conclusion, loans against mutual funds are a flexible and efficient financial tool that allows investors to access quick cash without losing out on their investment returns. Contrary to common myths, they offer a lower mutual fund interest rate, a simplified application process, and are suitable for both short- and long-term financial needs. Whether you require a small or large loan, this secured loan option offers a cost-effective solution to meet various financial demands. By understanding the true benefits of loans against mutual funds, investors can make informed and educated decisions and effectively manage their finances in any market situation.
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