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What are the Pros and Cons of Loan Against Mutual Funds?

Loan against mutual funds is a good financing option without losing your financial assets. However, you must be aware of both the pros and cons when acquiring a loan against your mutual funds.

Pros:

1. Lower interest rates: The loan against mutual funds has lower interest rates compared to an unsecured loan. This is because it is a secured loan and provided when pledged against collaterals. Therefore, this loan has a lower rate of interest as well.

2. No specific purpose: The loan against mutual funds can be acquired for any purpose – just like a personal loan. The lenders won’t ask you the purpose of the loan for approval. It means you can make use of the acquired loan amount for purchasing a new house or just to pay your old debt or any medical emergency funding.
   
3. No Pre-payment charges: The loan against mutual funds has a low tenure for repayment. Therefore, the lenders don’t charge applicants with any pre-payment amount.

Cons:

1. Loan to value: The major disadvantage of loan against mutual funds is that the lender offers you a lower amount than your actual stock value. The lender will provide only 60-80% of the amount of the collateral.
    
2. List of companies: The lenders pay close attention to the company’s name in the lenders' list. If a company name is not in a lenders list, the loan will be rejected.


3. Selling of stocks: When your loan is approved, you will partially lose authority from selling your mutual funds. You can gain the full authority of your stocks only after repaying the loan amount.

To know more about the loan against mutual funds and its pros and cons, click here: The Pros and Cons of Taking a Loan Against Mutual Funds

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