Skip to main content

Loan against Mutual Fund

If markets are in a bull phase, it makes sense to redeem your investments

Say, you have investments in mutual funds (MFs), and you need money urgently. Do you redeem your investments? HDFC Bank Ltd seems to suggest you shouldn't. It launched its digital loans against mutual fund on 23 May. It is an overdraft facility that promises to give you money within minutes. Should you opt for it?

What is it?

At present, it is possible to take loans against mutual fund and equity share holdings. But HDFC Bank's loan against funds is completely online and paperless. You just need an HDFC Bank savings account.

The bank will offer loans against fund houses that Computer Age Management Services Ltd (Cams; one of India's largest registrar and transfer agents) services. So far, it will cater to 10 fund houses (see graph), It said it will eventually offer loans against MF units of other fund houses as well, including those serviced by other R&Ts such as Karvy Computershare.


The process is simple. Log in to your internet banking account, fill in basic details, and choose if you want to hypothecate equity or debt funds. The bank will re-direct your application to Cams, which will verify your MF holdings. As per Reserve Bank of India (RBI) rules, you can avail loans up to 50% of your equity funds and 80% of your debt funds. HDFC Bank offers loans of Rs1-10 lakh on equity funds and up to Rs1 crore on debt funds. It is an overdraft facility, so there is no tenure, but the loan is to be renewed annually.

After you choose the funds and the number of units, your application goes into processing, and you get your money in minutes. As per RBI guidelines, you need to open a separate current account (at HDFC Bank) where the bank will deposit your loan amount.

What works?

The process needs no documentation and is online. Also, you need not have bought funds from HDFC Bank. Units bought from others are also eligible securities here. On the Cams website, you can see all your holdings at one place.

When you take a loan against your MFs, you still own them; you just can't sell them till you repay your loan.

What doesn't?

As of now, this facility is available only on folios with a single holding.  But very soon, other holding pattern folios will also be made available

Loans against securities and funds are expensive. The bank didn't commit on the interest rate, saying it would depend on the customer's relations with the bank, indicated a rate of 10-11.5% per annum. Add a flat processing fee of Rs 1,499 per transaction.

Future Focus take on This

Almost a year ago, NJ India Invest Ltd, one of India's largest MF distributors, also started offering loans against MFs, along with Bajaj Finance Ltd. NJ India Invest holds its investors' MF units in dematerialised form, so a tie-up with a R&T isn't necessary. As an investor, this doesn't matter, but if you aren't an NJ India Invest's customer, then your only choice to take a loan against MFs is HDFC Bank, if you are want an easier way.

The question is: should you take a loan against MFs? The only situation when you can think of taking such a loan is if equity markets drop sharply and you lose, say, 20-25% of your corpus and you need money urgently. Instead of selling your MFs at a loss, you can take a loan and retain your units. When markets recover, your funds will grow back. But if your portfolio is in profit and you need money, it's better to sell your holdings instead of borrowing, he said.

Taking a loan, if required, that is less than 50% of the lien units' value If markets fall, you would not be called upon to repay your loan amount prematurely or offer more units in lien. Keep that margin of safety.

If markets are in a bull phase, it makes sense to redeem your investments. If markets are bearish, it may make sense to borrow if you need money urgently. If you must, then borrow wisely.




SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Popular posts from this blog

Birla SunLife Manufacturing Equity Fund

The Make in India program was launched by Prime Minister Naredra Modi in September 2014 as part of a wider set of nation-building initiatives. It was devised to transform India into a global design and manufacturing hub. The primary motive of the campaign is to encourage multinational as well domestic companies to manufacture their products in India. This would create more job opportunities, bring high-quality standards and attract capital along with technological investment to bring more foreign direct investment (FDI) in the country.   Why India as the next manufacturing destination?   The rising demand in India along with the multinational's desire to diversify their production to include low-cost plants in countries other than China, can help India's manufacturing sector to grow and create millions of jobs. In the words of our Honourable Prime Minister- Mr. Narendra Modi, India offers the 3 'Ds' for business to thrive— democracy,...

Kisan Vikas Patra - KVP

  Kisan Vikas Patra (KVP) First launched in 1988, the Kisan Vikas Patra (KVP) is one of the premier and popular saving scheme offering from the Indian Postal Department. This product has had a very chequered history- initially successful, deemed a product that could be misused and thus terminated in 2011, followed by a triumphant return to prominence and popular consumption in 2014. The salient features of KVP are as follows- The grand USP- Money invested by the applicant doubles in 100 months (8 years, 4 months). KVPs are available in the following denominations- Rs.1000, Rs.5000, Rs.10,000 and Rs.50,000. The minimum purchase value for the KVP is Rs.1000. There is no maximum limit. KVPs are available at all departmental post offices across India. These certificates can be prematurely encashed after 2 ½ years from the point of issue. KVPs can be transferred from one individual to another and from one post office to another. ----------------------------------------------------- Inve...

Mutual Fund Review: Reliance Regular Savings Equity

    Despite high churn, Reliance Regular Savings Equity has managed to fetch good returns   In its short history, this one has made its mark. Though its annual and trailing returns are amazing, the fund started off on a lousy note (last two quarters of 2005). It managed to impress in 2006 and was turning out to be pretty average in 2007, till Omprakash Kuckian took over in November 2007 and wasted no time in changing the complexion of the portfolio. Exposure to Construction shot up to 28 per cent with almost 21 per cent cornered by Pratibha Industries and Madhucon Projects . Exposure to Engineering was yanked up (18.50%) while Financial Services lost its prime slot (dropped to 6.69%) and Auto was dumped. That quarter (December 2007), he delivered 54.66 per cent (category average: 25.70%).   When the market collapsed in 2008, thankfully the fund did not plummet abysmally. But even its high cash allocations could not cushion the fall which hovered around the category average. ...

Health for Wealth - How to buy Health Insurance ?

Tax Saving Mutual Funds Online Current open Infra Bond Application form   HEALTH insurance is a relatively new phenomenon in India. Hence, it is not on the top of the mind for most people to make a conscious commitment towards health insurance. However, it is imperative for each one of us to plan for better health for our families and ourselves. There's no better way than to start with making health your top priority this year. So, your health insurance resolution charter would look something like: ■ Invest in health for wealth: Timely investment in health insurance can help build a security net and hedge sudden dilution of another financial asset class in the event of a health emergency, making it imperative to opt for a comprehensive health insurance plan. ■ Buy a comprehensive health cover that fu lfills your health needs for life: Buy a personal health insurance cover even if you have an employee cover because 'employer provided' health insuranc...

Stock Review: Havells

HAVELLS India's stock performance has been muted in the past three months, in line with the weak broader market. But, given the turnaround in its overseas subsidiary and the launch of new products in its consumer durable business, the company's stock may undergo a re-rating.    Havells is India's leading consumer electrical goods company, with consolidated sales of . 5,527 crore in the past four quarters. Its wholly-owned subsidiary Sylvania, which makes lighting and fixtures, has established brands in European, Latin American and Asian markets. Sylvania repre sented nearly half of the company's consolidated revenues in the first half of FY11.    Sylvania's poor financials hit Havells' consolidated performance in FY10. But, this has changed in the cur rent fiscal. Havells has reduced fixed costs of Sylvania by exiting from unprofitable businesses and outsourcing manufacturing to low-cost locations such as India and China. In the September 2010 quarter, Sylv...
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