Can We Pledge on Mutual Funds?
5paisa Research Team
Last Updated: 02 Jan, 2025 01:04 PM IST
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Content
- What are Mutual funds?
- What is pledge on mutual funds?
- How can Mutual Funds be Pledge?
- Can Mutual Funds be Pledged?
- What is the Procedure to Pledge Mutual Funds?
- What is the interest for loan on Mutual Funds?
- What are the Documents Required for the Loan against Mutual Funds?
- Mutual Fund Pledge: Advantages
- Why Loan Against Mutual Funds better than Personal Loan?
- Amount of money that can be borrowed
- Conclusion
In India, one can pledge mutual funds to secure loans or credit from banks or financial organizations. By pledging your mutual fund units, you effectively use them as collateral. The lender evaluates the value of your assets and makes a loan against mutual funds, usually a proportion of the fund's current market value.
This facility is helpful since it provides liquidity without requiring you to liquidate your investments, allowing you to continue generating profits while fulfilling your financial obligations. The pledged assets are still invested, and you can return the loan to release the promise and reclaim complete control over your mutual fund units.
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Frequently Asked Questions
Yes, eligibility criteria include being an adult with KYC compliance, holding mutual funds in demat form, and meeting the lender’s creditworthiness standards. Specific lenders may have additional requirements based on the type of mutual funds.
Apart from mutual funds, you can pledge fixed deposits, shares, government bonds, gold, and life insurance policies to secure loans.
You can pledge mutual funds with banks, NBFCs, or financial institutions offering loans against securities. The process can be initiated through the mutual fund company, your demat account, or directly with the lender.
The loan amount typically ranges between 50% to 80% of the current market value of your mutual funds, depending on the fund type and the lender’s policy.
Yes, you can pledge most equity, debt, or hybrid mutual funds, but some funds may not be accepted based on the lender’s criteria and the fund’s liquidity and risk profile.
Check the interest rate, processing fees, loan tenure, the loan-to-value ratio, and the lender’s terms. Also, ensure the mutual funds you are pledging align with your financial goals and liquidity needs.
If you fail to repay, the lender can sell the pledged mutual fund units to recover the loan amount, which could result in financial losses and potential impact on your credit score.