Borrowing against mutual funds: All you need to know

economictimes.indiatimes.com:

mutual funds to the extent of money required, financial planners suggest borrowing against your funds for such short-term needs.

HOW CAN YOU GET A LOAN AGAINST YOUR MUTUAL FUND UNITS? WHAT DOES IT COST?
A loan against your equity or hybrid mutual fund units can be taken from a bank or a non-banking finance company (NBFC). The interest rate could be in the range of 9-11% based on the loan amount and tenure. Once you pledge your MF units, they are marked as under lien, which means you cannot sell or switch the units. Financial planners recommend borrowing against equity-oriented mutual funds and not against liquid or debt-oriented funds.

WHAT IS THE ADVANTAGE OF BORROWING AGAINST MF UNITS?
Loan against MFs gives you the option of receiving immediate liquidity against the fund units that you own. It is like an overdraft facility for shortterm monetary requirements, with a relatively shorter tenure compared to other loans. It can be used judiciously by people looking to leverage their otherwise idle mutual fund investments, and also raise capital quickly for short-term financing needs. You need not sell your mutual fund units, hence your financial plan remains intact and neither is your ownership of fund units divested after pledging them for a loan. However, do not use this money to buy stocks or equity mutual funds. This is because in the near term volatility can be high and you could end up making a mark-to-market loss while also paying the interest on the loan.

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