How Mutual Funds Become the New Way to Receive Personal Loans?
Mutual funds are one of the common trends of investment, as they allow people to have exposure to the growing equity market of the country, and through that, a person can leverage the growth of the company.
As a person starts their investment in the financial market, they now have exposure to an asset class that can be used like a home and can be pledged for raising capital. With the rise of mutual fund investment, we can witness the growth in the sector where it’s obvious to find why people are flocking to these investments.
The personal loan disbursement also increased when it came to the rise in mutual funds. People can now pledge their mutual fund investment, and through that, they can get loans even at lower interest rate offerings.
How Does a Loan Against Mutual Funds Work?
The loan against the mutual fund works when one has a significant amount invested in the fund, and that works as an asset for the person. It works the same as property or gold where people pledge the asset for a time being and take some financial assistance.
From a personal loan DSA, one needs to find the right methods that are available for them while taking a loan. Here, the lender checks the NAV, which must be equal to or above 50% of the asset value.
Why It’s Now a Better Option for Seeking a Personal Loan?
Personal loans have always been a last resort for an individual who wants to take money for some major issue. One of the major issues that people face in a personal loan is the high interest rate as any collateral does not back it and therefore needs to pay higher interest.
Here are some of the measures that are happening in the personal loan segment that will help a person to get better financing.
- Quicker Processing of Funds
When it comes to the role of the funds, there is something that you can get by hedging the mutual fund account. Once you provide collateral, you get the chance to showcase the asset figures, and that helps you to give the personal loan.
- Usage and Flexibility
The usage and flexibility of the loan increase as a person starts to pledge their mutual fund assets for the loan. Here, one can get the option from multiple lenders, and through that, one can choose the credit option that will be better and provide more flexible terms to the borrower.
- Retaining the Ownership Status of the Fund
One of the final things that a person can have is that once they pledge their assets, that doesn’t mean that the ownership of the asset will change suddenly. Once the person maintains the record of regular debt repayment, then after the term, they can get back their mutual fund without any interference.
- Greater Repayment Options
Along with the ownership, pledging the mutual fund allows the person to have greater repayment options. Since the loan is backed by an asset and through that, one can make the payment or restructure the debt depending on their financial situation.
What are the Risks One Needs to Consider For Pledging Funds
Pledging mutual funds involves a risk of volatility, which might hamper the prospect of the asset if the market nosedives from that particular level.
- A Risk from the Market
Market volatility is one important factor that destroys the value of the portfolio, and if one is facing repayment, then that asset can be liquidated. A person might still be in debt as the entire amount doesn’t get covered. There are DSA apps where agents are there, and they can suggest a person on the steps to mitigate such risks and how to pledge the asset correctly.
- Chance of a Margin Call
One of the rare incidents that can happen with this asset type is that the market is volatile and that can lead to a significant decrease in value. Here, a person needs to put in additional funds that can work as collateral, as the value might decrease a lot from that level.
After considering all these factors, one can finally decide whether or not to pledge a mutual fund asset, as it comes with its own set of benefits and drawbacks.
