Skip to main content

Should you sell your Mutual Funds or borrow loan against Mutual Funds?

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

 

You can borrow up to 50 per cent of your fund value pledge your Mutual Fund

·         Overdraft is available against both equity and debtMFunits

·         The overdraft limit is usually around 50 per cent of the value of the units

·         The value is regularly monitored for the changes and the overdraft limit is adjusted accordingly

·         Only specified MF units are eligible for the facility

·         Shop around for lower rates on the overdraftamong banks

 

One of the options available for investors in mutual fund (MF) units to raise cash is to take an overdraft facility against these units. This is usually available with most banks – private and public. At times when you require money for a short period of time, this can be a good choice as compared to selling the units.

However, before taking a final decision you need to carefully consider how exactly this works and evaluate whether it actually suits your specific need.

When to pledge

Sometimes investors may face a sudden need for funds. To meet this requirement the investor will have to either dip into his or her investments or look for some borrowings. In some cases, it may happen that the investor may decide to sell his existing investment in MFs to raise the required amount. This would mean a step back in the process of building a corpus because when the balance reduces, it will take away the benefit of compounding of the portfolio. To avoid this investors should look around for options to see that they suffer minimum financial damage at the end of the day.

Get funds through an overdraft

Several banks offer the option of taking an overdraft against MF units. The benefit of this is that the investor gets to keep the investment that they have initially made and at the same time raise funds for to meet the immediate requirement. It works like this. You go to the bank with the number of units you have in a certain MF. The units are pledged to the bank and it then agrees to lend against them up to a certain amount that is decided based upon the value of the units and the discounting factor that is available with the bank. A current account is opened with a specific limit. The investor can then withdraw the money up to the limit that has been sanctioned at the specified rate of interest. The key point here is that the withdrawal would be charged only when it is actually made. So, merely availing an overdraft limit does not impact the finances, that is, it does not involve any repayment.

Investors can pay back the money when they have the required funds and they will be charged interest only for the time that they have used the funds.

Most banks offer this facility, so investors have a wide choice of which bank to approach. It is possible to pledge units of both equity and debt MFs. But there is one restriction. This facility is available only against those MF schemes that are specified by the bank for this purpose. Therefore, it is important for to look at the list of schemes with the bank before pledging their MF units.

Another factor to keep in mind is that banks will offer only a certain percentage of the fund value as the overdraft limit. In most cases, it is 50 per cent. This means that if the value of the units is ₹ 1 lakh, then the bank will offer ₹ 50,000 as overdraft limit.

This limit will vary from banktobank. Usually, banks offer between ₹ 50,000– 2, 00,000 as the overdraft limit.

In terms of the cost, the interest rate varies between 11 and 14 per cent, depending on the bank. This is better than the rates offered for a personal loan, since overdraft against MF is a secured loan, while a personal loan is an unsecured loan. You can scout around and check which banks offer the lowest rate. If you already have a relationship with the bank, you can request for better rates. The bank will check the value of the portfolio at regular intervals, in many cases this could be weekly. This is done so that the total overdraft limit is adjusted accordingly. If the fund value dips, due to fluctuations in the market, the limit will be lowered. In case of a default the bank could ask the investor to sell the MF units in order to recover its money.

This route is Suitable for short term

This route is suitable for investors who have MF units and want a small amount for a short period. The overdraft facility ensures that their cost is limited as they will pay only for the time period that they use the funds. Also, it allows for flexibility in the paying back. So, this route is useful if you are not sure that you will be able to repay the money in a linear fashion. This option allows investors to retain their investments and at the same time raise funds against it to meet any emergency.

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax Plan Invest Online
  2. HDFC TaxSaver Invest Online
  3. DSP BlackRock Tax Saver Fund Invest Online
  4. Reliance Tax Saver (ELSS) Fund Invest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund Invest Online
  7. SBI Magnum Tax Gain Scheme 1993 Invest Online
  8. Sundaram Tax Saver Invest Online
  9. Edelweiss ELSS Invest Online

------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFunds Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

ICICI Pru Mutual Fund Dividend

ICICI Prudential Mutual Fund has announced dividend under the following schemes: Scheme Dividend ( Rs /unit) ICICI Pru Capital Protection Oriented Ser V Plan B-D 0.03611325 ICICI Pru Capital Protection Oriented Ser V Plan B Direct-D 0.03611325 ICICI Pru Balanced Advantage Direct-DM 0.06 The record date has been fixed as February 08, 2017. ------------------------------ ------ Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund Invest in Best Performing 2017 Tax Saver Mutual Funds Online Invest Best Tax Saver Mutual Funds Online Download Top Tax Saver Mutual Funds  Application Forms For further information contact  SaveTaxGetRich on 94 8300 8300 ------------------------------ ------ Leave y...
Read more

Hidden Bank Fees

  What Banks Hide From Customers Imagine after a peaceful and exciting holiday you receive your bank statement with steep charges. You then rush to your bank and start confronting staff members and to your dismay, you come to know that the high end debit card was charged very heavily. Wouldn't this cause damage to your finances? So remember, the world outside is full of deceptive and double cheating people. Unethical practices are always used by company sales person in order to meet the target. Credit card companies, mutual funds and bank institutions always play dirty tricks to lure customers and the practices are rampant. So here's how you should be careful while dealing with your banks: High End Debit Card Charges While opening an account with a bank you opt for a debit card with minimal charges. But later on when you upgrade your card and opt for high end debit card the annual charge rise by a good amount. Though such a card has slew of features but it all comes at a high ...
Read more

Partial withdrawal from PPF

  Public Provident Fund (PPF) account has a lock in period   If you opened a PPF account to meet your retirement needs,, think twice about withdrawing from this fund before retirement. But provided it's an emergency here are the rules. Public Provident Fund (PPF) account has a lock in period before which you cannot withdraw your money.   The partial withdrawal is allowed after the completion of 6 financial years . This means that you will be allowed a partial withdrawal from 1 April 2017. The maximum partial withdrawal allowed is the least of the following: 50 percent of the account balance at the end of fourth financial year, 31 March 15 50 percent of the account balance of the end of previous financial year, 31 March 17.   There's a loan option available on your PPF account between the fourth and the sixth financial year. You can obtain a loan of up to 25 per cent of the balance in your account. However, this will attract interest of 2 percent more than the prevailing ...
Read more

Updating a minor PAN card upon becoming adults

  Updating a minor's PAN card once they become adults A PAN card issued in the name of a minor does not contain the minor's photograph or signature, and therefore, cannot be used as a valid proof of identity. Once a minor PAN card holder turns 18, the relevant changes must be made in the PAN records. A new card is then issued bearing a photograph and signature. Application The applicant is required to fill up the "Request for new PAN card andor changes or correction in PAN data" form. The form can be filled up online by accessing NSDL's Tax Information Network website and clicking on the online PAN application tab. Information The applicant must mention the existing PAN number in the application and check the `photo mismatch' and `signature mismatch' boxes, and submit the online form. The form must also be printed out, signed by the applicant, and submitted along with two photographs. Documents Identity and address proof in the form of a copy of the app...
Read more

ICICI Prudential Value Fund Series I

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   Performance of the scheme will be benchmarked to the S&P BSE 500 index ICICI Prudential Value Fund is a closeended equity scheme. The scheme will have tenure of three years (1095 days) from the date of allotment of units. Units of the scheme will be fully redeemed at the end of the maturity period, unless rolled over. NFO PERIOD:   The NFO is open from October 18 to 28. The minimum subscription during the NFO period is Rs 5,000. SCHEME OBJECTIVE:   The scheme aims to provide long-term capital growth by investing in a well-diversified portfolio of equity and equity-related securities. INVESTMENT STRATEGY:     The fund proposes to invest in stocks that are trading at a huge discount in the BSE 500 index and plans to book profit and distribute dividen...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now