Taking loan in case of financial emergency is not new for any individual. However, while opting for the loan instrument, it’s better to look at all possible options and their rate of interest. According to investment and tax experts, some times people opt for high interest non-secured loans without considering that mutual funds or stock investments can also be pledged and avail of loan at much lower interest rate levied by lending institutions on non secured loans like personal loan or loan against credit card. In fact, loan against mutual funds investment and stock investments help an investor to avoid capital gain taxes as well.
Batting in favour of loan against mutual funds or stocks instead of opting non-secured loans like personal loan or loan against credit card, Vinit Khandare, CEO & Founder at MyFundBazaar said, “Being an asset-surplus liquidity-deficient country, Indians always prefer a secured credit with home, agriculture land, gold, and vehicle loans. With digitisation progresses in the ecosystem seamlessly easing out, consumers will streamline to leveraging digital assets at ease, to take credit. Ultimately, as stocks, mutual funds, bonds, and insurance become more digitized for APIs to be prevalent and viable in the ecosystem, users will garner wider avenues to pledge, establish credit on them & utilise them as additional collateral for other purchases & expenses.”
On how loan against mutual funds or stocks is beneficial for a borrower, CA Manish P Hingar, Founder at Fintoo said, “Taking a loan against mutual funds or stocks can be a good option if you need to borrow money and have investments in mutual funds or stocks that you can use as collateral. This can be a good way to access cash without having to sell your investments, which can help you avoid capital gains taxes and keep your investments growing.” However, Fintoo expert said that one can avail a loan only up to a certain limit of one’s holdings. The limit is higher for debt investments and lower for equity investments. This is because equity shares or equity mutual funds are volatile in nature.
“One of the key benefits of taking a loan against your mutual fund or stocks investments is lower interest rates offered compared to personal loans or credit cards. This is because a loan against investments is a secured loan. Another advantage is that one can continue to earn returns on their investments. Although the Bank has the right to sell the mutual funds or stocks in case of default, but in case there is no default the investor will continue to earn market linked returns. Many banks offer such loans online which makes it more convenient to avail,” Manish P Hingar said.
Hence, taking a loan against mutual funds or stock investments can be a wise decision but it will depend on an individual’s financial situation and goals.
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