Your Questions Answered: What are the differences between loan against mutual funds and fixed deposits?

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Virendra Chabra, Ludhiana, Punjab In the realm of Indian finance, loan against mutual funds (LAMF) and loan against fixed deposits (LAFD) stand as two popular options for borrowers seeking quick access to funds. While both these loans serve the same purpose, they differ significantly in their underlying principles, risks, and suitability for different individuals. This blog delves into the intricacies of LAMF and LAFD, providing a comprehensive overview of their key distinctions, application processes, and potential consequences of default.

Loan against mutual fund- A LAMF is a secured loan where borrowers pledge their mutual fund units as collateral to avail funds. The loan amount is determined by the value of the pledged units, with loan-to-value (LTV) ratios typically ranging from 50% to 75%. Loan against fixed deposit (LAFD)- An LAFD is another secured loan where borrowers pledge their fixed deposits (FDs) as collateral.

The loan amount is limited to a certain percentage of the FD value, with LTV ratios typically ranging from 75% to 90%. Generally, LAFDs offer lower interest rates compared to LAMFs. This is because FDs are considered less risky collateral compared to mutual fund units, which are subject to market fluctuations.

LAFDs typically have a faster processing time compared to LAMFs. This is because the value of the pledged FD is readily determinable, while the valuation of mutual fund units may take longer. In conclusion, the choice between LAMF and LAFD depends on individual circumstances and risk tolerance.

For those seeking quick access to funds without disrupting investments, LAMF may be suitable. However, if stability and predictable repayment costs are priorities, LAFD could outperform LAMF. In most