Both personal loans and loans against mutual funds are financial instruments that can assist you in managing your financial requirements. Loans secured by mutual funds, on the other hand, are a superior option in many circumstances due to their numerous benefits.
Difference between Personal Loan and Loan Against Mutual Funds
Financial organizations offer unsecured personal loans depending on the borrower’s income, creditworthiness, and financial history. It can be used for a number of things, including paying for personal expenses, managing emergencies, and consolidating debt. Collateral is not needed.
In contrast, loans against mutual funds and loans against securities are forms of secured borrowing where the borrower pledges their financial assets to obtain funds. A loan against securities involves using various financial instruments like stocks, bonds, or other investments as collateral.
Here are 10 reasons why loans against mutual funds are often a superior option compared to personal loans
1. Lower Interest Rates
Loans against mutual funds typically come with lower interest rates compared to personal loans, making them more cost-effective.
2. No Credit Check
Lenders offering loans against mutual funds often do not perform credit checks, which can be advantageous if you have a less-than-perfect credit history.
3. Instant Access to Funds
You can access funds quickly without the need to go through a lengthy approval process, making loans against mutual funds suitable for urgent financial needs.
4. Preservation of Investments
Your mutual fund investments remain intact and continue to grow while you use the loan amount. With personal loans, you might need to liquidate assets or investments.
5. Flexibility
Loans against mutual funds offer flexible repayment terms, allowing you to choose the loan tenure and repayment options that suit your financial situation.
6. No Restrictions on Use
You can use the loan amount for any purpose, whether it’s for home renovations, education, or even investments, providing greater flexibility.
7. Tax Benefits
In some cases, the interest paid on a loan against mutual funds may be tax-deductible. This isn’t typically the case with personal loans, providing potential tax advantages.
8. Minimal Documentation
The application process for loans against mutual funds usually involves minimal documentation, simplifying the process.
9. Risk Mitigation
If your mutual fund investments are performing well, taking a loan against them allows you to benefit from the market gains while accessing funds. This isn’t possible with personal loans.
10. Lower Processing Fees
Loans against mutual funds often have lower processing fees, reducing the overall cost of borrowing. APPLY NOW
Additional Considerations for LAMFs
1. Access and Convenience through Digital Platforms
Digital loans against mutual funds provide unparalleled accessibility and convenience. By utilizing online platforms offered by financial institutions or lending apps, borrowers can seamlessly apply for and manage their loans from the comfort of their homes or on-the-go, eliminating the need for physical visits to banks or offices, a convenience not commonly associated with traditional personal loans.
2. Retain Control
Maintaining control over one’s investments is a key advantage of loans against mutual funds (LAMFs). Unlike personal loans, which may require asset liquidation, LAMFs allow borrowers to retain ownership of their mutual fund investments. This preservation of investments empowers borrowers to continue benefiting from market gains while utilizing the loan proceeds for their desired purposes.
3. Advanced Security Measures
Digital loan platforms prioritize robust security measures to protect borrowers’ sensitive information and assets. Utilizing encryption techniques and multi-factor authentication, these platforms ensure a high level of security, instilling confidence in borrowers about the safety of their financial transactions.
4. Loan-to-Value Ratio (LTV)
A key consideration when lending against mutual funds is the loan-to-value ratio, or LTV. It shows the proportion of a mutual fund’s worth that a lender is ready to loan. LTVs normally fall between 50% and 80%, with greater LTVs often being linked to higher interest rates.
5. Interest Rate Fluctuations
Interest rates for LAMFs are not fixed and can fluctuate based on prevailing market conditions and the specific mutual funds used as collateral. When market interest rates rise, LAMF interest rates tend to follow suit, leading to higher borrowing costs. Conversely, during periods of falling interest rates, LAMF interest rates may also decline, potentially reducing the borrower’s financial burden.
6. Risk of Margin Calls
Margin calls are a potential risk associated with LAMFs. They arise when the value of the mutual fund collateral used to secure the loan declines significantly. In such instances, the lender may issue a margin call, demanding that the borrower either provide additional collateral or repay a portion of the outstanding loan amount to maintain the agreed-upon LTV (loan-to-value ratio).
Unveiling New Avenues of Financial Flexibility
Lark Finserv, a pioneer in the Loans Against Securities (LAS) domain, is proud to announce the expansion of its product portfolio with the introduction of Loan Against Stocks (LAS) and Loan Against Insurance Policies (LAIP). These innovative financial solutions empower individuals and businesses to unlock the true value of their assets and access liquidity without disrupting their long-term financial goals.
Conclusion
Advance Against Compared to personal loans, mutual funds have several advantages. They are a useful financial tool in a variety of circumstances because they offer reduced interest rates, rapid access to funds, flexibility, and investment preservation. To make sure that a choice you make will support your long-term financial objectives, it is crucial to assess your unique financial circumstances and speak with a financial counselor.