Some may consider taking a loan against their mutual funds for immediate needs in hand. The question is if that is a sound decision. So, let us break it down and discuss the pros and cons with you to give you an understanding of whether that is the decision you should make through the best instant loan app.
What Is Taking a Loan Against Mutual Funds?
When you take a loan against your mutual funds, it’s like borrowing money with your mutual fund units as security. If you can’t repay the loan, the lender has the right to sell those mutual fund units to recover their money.
Advantages of Taking a Loan Against Mutual Funds
- Ready Cash
You don’t need to wait long for approvals with mutual funds. Loans against mutual funds can even be processed quicker than personal loans. This really helps in situations when urgent funds are needed.
- No Need to Sell Your Investments
You can keep your mutual funds if you take a loan. This way, your investments will continue to grow. That is a great advantage if the market is doing well and you don’t want to miss out on the potential profits.
- Lower Interest Rates
The loans against your mutual funds have lower interest rates than those of personal loans or credit cards. Lenders see your mutual funds as security and, hence offer better rates.
- Flexibility in the loan amount
The amount you can borrow depends on the value of your mutual funds. You can typically borrow around 50% to 75% of the value of your mutual fund units. This makes it a good option if you need a moderate amount of money.
Alternative Approach of Taking a Loan Against Mutual Funds
- Retain Control Over Your Investments
There’s no sale when you take a loan against your mutual funds, and therefore you can still receive the benefit from a rise in value on your mutual fund. It only serves as an additional finance solution temporarily with no interference with your long-term investment plan.
- Low Interest Rate
Compared to unsecured loans or credit cards, loans generally offer lower interest rates. That means you’re borrowing at a cheaper rate, and it’s one of the affordable options for those in need of some extra cash.
- Preservation of Investment Portfolio
A loan against mutual funds saves you from selling investments in your portfolio. The biggest advantage is the avoidance of the necessity to sell and thus lock potential losses at the low end when the market conditions become unfavourable.
- Flexibility of Repayment
Loans secured against mutual funds are mostly quite flexible. One can set repayment terms according to one’s financial situation. It allows ample time to deliberate on how one will repay and when.
The main advantage of taking a loan is when you need urgent cash and want to avoid selling your investments. But it does carry risks, and the only thing is to make sure that you can pay it back at the right time and that it suits your financial condition. Always research well and be sure that this is the best option for you.
