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

NRIs and direct taxes code (DTC)

DTC Proposes To Do Away With Special Provision That Allows NRIs Liberalised Duration Of Stay In Country      THE new direct taxes code could bring a large number of global Indians under the tax net, as it does away with a provision that allowed individuals to escape tax in any country citing double tax avoidance.    The new legislation, introduced in Parliament on Monday, says an individual shall be a resident of India in any financial year if he is in the country for more than 59 days in that year, and has been has been India for more 365 days in four preceding financial years. A number of Indian industrialists including Vedanta's Anil Agarwal and Essar's Ravi Ruia have acquired non-resident status over the years.    The DTC has only attempted to clean up the provision in line with the laws globally. A phrase "being outside India" in the existing income tax law exempted individuals who stay outside the country for six months from paying taxes. This was prone ...
Read more

Tata Fixed Income Portfolio Fund dividend

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)       Tata Mutual Fund has announced dividend under the dividend option of Tata Fixed Income Portfolio Scheme B2 Plan A-DQ, Tata Fixed Income Portfolio Scheme B2 Reg-DQ and Tata Fixed Income Portfolio Scheme B2 Direct-DQ. The record date has been fixed as August 29, 2013. 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 Onlin...
Read more

Mutual Fund Review: HDFC Mid-Cap Opportunities Fund

LAUNCHED in June 2007, HDFC Mid-Cap Opportunities Fund was started as a three year closed-ended scheme. It was subsequently converted into an open-ended scheme in June 2010. The fund has been ranked as Crisil Fund Rank 1 in the small & midcap equity category according to Crisil Mutual Fund Ranking methodology over two of the last four quarters and has been present in the top 30 percentile in the category for all the four quarters. Crisil Mutual Fund Rank 1 funds form the top 10 percentile of the ranked universe representing very good performance vis-à-vis category peers. The fund, managed by Chirag Setalvad, has assets under management of ` 1,275 crore as of April 30, 2011 and has outperformed its peers and the benchmark (CNX Midcap Index) in the 1, 2 and 3 year time frames. INVESTMENT APPROACH The fund's objective is to earn capital appreciation by investing in equities of small and mid cap companies. While these companies have a higher return potential than large cap ...
Read more

Stick to Good Fund Manager who Can Multiply Your Investment

A manager may be the difference between the best and worst funds. Here's how you can find the right one    Does a mutual fund manager make a difference to your investment? The answer may not be as easy as you think, since most best-performing mutual funds have moved away from individualistic fund management to process-driven methods, limiting the scope of an individual's role in investment decisions. In fact, many fund managers would speak at length about how the "system" their fund house has in place makes their task of picking stocks easy even though it restricts their freedom. Still, the question is important, especially after recent reports that the Securities and Exchange Board of India ( Sebi ) may ask fund managers to disclose to investors their track record of managing money. Let us take a look at the universe of large-cap funds over the past five years. According to Value Research, an independent mutual fund tracking firm, the topper in the category is DSP...
Read more

IDFC Classic Equity Fund

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   IDFC Classic Equity Fund IDFC Classic Equity is a large-cap equity fund which currently has assets under management worth Rs. 158.52 crore. It was launched in August 2005. The fund is benchmarked against the BSE-200 Index. Performance YTD 1-Year 3-Year 5-Year Since Inception IDFC Classic Equity 0.93 26.61 6.30 1.01 11.65 BSE 200 1.52 17.31 6.00 1.99 12.98 All figures in % as on January 31, 2013; Returns above one-year in CAGR terms ...
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