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

Mutual Fund Exit Load Changes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 Mutual Fund Exit Load Changes AMCs don't communicate about any change in exit load directly with investors, but do update on their website   The exit load applicable to your investments is the load which existed at the time when you invested in the particular fund. Any subsequent changes in the exit load will not be applicable to your investments.   However, Asset Management Companies ( AMCs ) periodically publish addendums in the newspapers, which state any change in exit loads of specific schemes managed by them. Such changes are also posted on their websites. However, a direct communication to an investor is not made, considering the costs involved in doing so. In their own interests, investors should not only track the performance of the funds they i...
Read more

Birla Sun Life Mutual Fund Launches Birla Sun Life NIFTY ETF

Birla Sun Life has launched a new fund namely, Birla Sun Life Nifty ETF, an open ended exchange traded fund. The new fund will be open for subscription from 4th July to 18th July 2011, at an offer price of Rs 10 per unit. The investment objective of the scheme is to generate returns that closely correspond to the total returns of securities as represented by S&P CNX Nifty, subject to tracking errors. No exit load will be charged under the scheme. The performance of the scheme will be benchmarked against S&P CNX Nifty and will be managed by Satyabrata Mohanty.   -----------------------------------------------------------------   Also, know how to buy mutual funds online:   1) DSP BlackRock Mutual Funds: http://prajnacapital.blogspot.com/2011/05/buying-dsp-blackrock-mutual-funds.html   2) Reliance Mutual Funds: http://prajnacapital.blogspot.com/2011/06/buying-reliance-mutual-funds-online.html   3) Birla Sunlife Mutual Funds: http://prajnacapital.blogspot.com/2011/...
Read more

Atal Pension Yojana contribution Tax Benefit for spouse

Contributions to Atal Pension Yojana (APY) are eligible for the same tax benefits as the NPS. This means that the contributions can be claimed under Section 80CCD (1B). The current limit for Section 80CCD (1B) is   Rs   50,000, over and above the   Rs   1.5 lakh limit under Section 80C. Section 80 CCD (1) is a different one, meant to cover employers' contribution towards NPS . You cannot get tax benefit by investing in the name of your spouse under Section 80 CCD . ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in India for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. IDFC Tax Advantage (ELSS) Fund 8. Birla Sun Life Tax Relief 96 9. ...
Read more

Mutual Fund Reivew: Birla Sun Life Asset Allocation Conservative

Birla Sun Life Asset Allocation Conservative has numbers on its side to prove its credibility… Don't be surprised to find this Fund of Funds ( FoF ) in our recommendations. It has earned its place. And despite the difference in the structure of the product, there is no arguing with the numbers.   Of the total 6 years of its existence, the fund has been among the top 10 funds in its category in four of them. Last year it put up an average show and the only year it underperformed its peers was in 2008.   One aspect to look at when investing in an FoF is the expense ratio. The expense ratio of an FoF is capped at a lower limit of 0.75 per cent (2.50% for an actively managed fund). However, the FoF not only has its own expense (though lower) but even the expense ratio of the fund it is investing into. Fortunately, the fund manager takes that into account. "Expense is one of the important criteria used for fund selection and is the main reason for our investment in BSL Ind...
Read more

Short-Term Investment Options in Mutual Funds

Mutual funds offer liquid funds and ultra short term funds in the debt category, which are suitable for short investment periods. Ultra short-term funds were earlier known as liquid plus funds. Liquid funds invest in money market instruments with a maturity of 91 days or less. However, there are no such restrictions for ultra short-term funds. Who should invest in these? These are open-ended schemes. Investors with a short investment horizon or with surplus cash and low risk appetite should look at these. These could include corporate as well as retail investors. Those interested in staying invested for less than 15 days can opt for liquid funds. Retail investors who want to remain invested for two-four months, can look at ultra short-term funds. The short duration for both liquid and ultra short-term funds shields them from any interest rate volatility.   What kind of returns do they offer? In terms of an investment period less than 15 days, these funds are comparable to a ba...
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