Advantages and Disadvantages of Digital Loans Against Mutual Funds Traditional banks and NBFCs take a long time and are a time-consuming process that often requires a lot of paperwork. Thus, there is a rising trend of individuals choosing digital loans. Typically there are two main categories of loans; secured and unsecured loans. One such kind of secured instant personal loan is a digital loan against a mutual fund wherein the borrower pledges their mutual funds. This article explores digital loans against mutual funds and their respective advantages and disadvantages. What are Digital Loans Against Mutual Funds? Digital loan against mutual funds is a type of secured loan. The loan is given to you by keeping your mutual funds as collateral. Once you get a loan against mutual funds, you cannot sell mutual fund holdings during your loan tenure till you complete the repayment. Since the mutual funds are collateral against the given loan, lenders offer lower interest rates and flexible payment plans as compared to traditional banks & NBFCs. Digital Loans Against Mutual Funds Advantages Opting for a loan with mutual funds as collateral is a good option to consider. Digital loan against mutual funds advantages are as mentioned below:   Quick Access to Funds: Digital loans against mutual funds have easy approval and quick loan disbursal. This makes it a good option in case of emergencies like medical bills or any additional unforeseen expenses.   Minimal Documentation: Platforms offering this service have an online process with minimal documentation. This makes it a hassle-free option as compared to traditional banks, which require a lot of paperwork and longer time for loan disbursal.   Competitive Interest Rates: As the loan is taken against one’s mutual funds, the interest rates are lower compared to personal loans or credit cards. Taking an unsecured personal loan from banks, or NBFCs or getting a credit card leads to lenders offering high interest rates to cover the possible risk. With digital loans against mutual funds, lenders offer better interest rates since the loan is secured by collateral.   No Impact on Investment Portfolio: When you opt to take a loan against mutual funds, you retain ownership of your investment portfolio. You will receive any capital appreciation and dividends generated with your investments. Your money continues to work for you while you take a loan against a mutual fund.  Digital Loans Against Mutual Funds Disadvantages One needs to also consider the risk attached to any type of loan. Digital loan against mutual funds disadvantages are as mentioned below:   Risk of Market Fluctuation: Within your loan tenure, the value of your portfolio may go low due to market fluctuation. This may lead to the lender issuing a margin call. In this case, you need to pay part of the loan or pledge additional assets. If one fails to fulfil the margin call, it could lead to the liquidation of mutual funds and result in a financial loss.   Limited Loan Amount Based on Mutual Fund Value: A lender typically offers a lower loan amount compared to the value of the pledged mutual funds. Thus you have limited access to the funds as compared to the market value of your mutual funds. You don’t have full access to the entire value of your investments.    Potential Tax Implications: One may also have to face tax implications, depending on their jurisdiction. Tax implications depend on the amount invested and loan tenure. It is advisable to make sure the overall returns outweigh the tax levied, otherwise it may lead to loss.   Also Read: Beginner’s Guide to Investment in India: Tips and Options Factors to Consider Before Opting for a Digital Loan Before you opt for a personal loan online, consider these factors to determine if the loan suits you financial goal:    Evaluate Options: Do thorough market research on lenders that offer digital personal loans. It is advisable to carefully weigh the options and not go with the first lender one comes across.    Repayment Plan: While one considers the loan amount, it is also important to look at the repayment plan that fits your financial situation. You may access online Personal loan EMI calculators, to determine your monthly loan payments. If EMI seems too high, adjust the loan tenure or apply for a small amount.   Read The Fine Print: Carefully read all the terms & conditions and make sure you understand all the financial jargon in the loan documents. Check the personal loan documents for interest rate, acceptable payment mode, processing fees and any other additional charges, to have a clear idea about all the payment details.    Credit Score: Improve chances of quick loan approval by making sure you have a good credit score. Most lenders prefer a credit score of 750 and above. While one may still get a loan at a lower credit score, it is important to maintain a high credit score if one wants to apply for a high loan amount. Steps to Apply for a Digital Loan Against Mutual Funds When you consider applying for a Digital Loan Against Mutual Fund, these are the tentative steps one needs to follow:   Check Eligibility: Ensure you meet the lender’s criteria, like the type and value of mutual funds eligible for a loan. Lenders might also require you to be salaried or self-employed.    Choose a Lender: Compare different lenders based on interest rates, repayment terms, and processing fees. Ensure you are aware of the terms and conditions of each lender.   Complete the Application: Fill out the online application form on the lender’s website or app, providing the required details about your mutual fund holdings.   Submit Documents: Upload necessary documents such as identification, proof of mutual fund ownership, and other KYC details.   Approval and Verification: The lender will review your application and documents. They may also verify your mutual fund holdings with the asset management company (AMC).   Loan Offer: If the loan application is approved, you’ll receive a

Tips to Maximise Your Mutual Fund Investments Mutual funds can be a great investment if you are looking to build wealth. If you are a beginner or don’t have the time to monitor the market regularly, investing in mutual funds is a convenient option. The investor’s portfolio is typically managed by a fund manager, who has a good understanding of the market. Portfolio management companies are regulated by SEBI, to protect the investor interest and market integrity. If you have just begun your investment journey, this article will guide you on strategies on how you can get maximum returns on your mutual fund investments What are Mutual Fund Investments? Mutual funds are a popular option for individuals who want to invest in a diversified portfolio of assets, which mainly includes stocks, bonds, and other securities. A mutual fund is a type of trust that collects money from several investors who share a common investment objective. The money pooled in by a large number of investors is what makes up a Mutual Fund and the investments are managed by a fund manager. The fund is strategically invested in equities, bonds, money market instruments, and/or other securities. The income/gains generated from this collective investment are distributed proportionately amongst the investors after deducting applicable expenses and levies, by calculating a scheme’s “Net Asset Value” or NAV. One of the key benefits of mutual fund investment is diversification, which allows you to invest in a range of assets rather than a single stock or bond. For someone who is a beginner, mutual funds are an excellent option to get started as they are managed by professionals. Risks with Mutual Fund Investments Before one invests in mutual funds, it is important to understand the risks attached with mutual fund investments. No guaranteed returns in mutual fund schemes: Mutual fund investments are not guaranteed or assured return products. Understanding Risk in Mutual Funds: There is investment risk attached to trading volumes, settlement risks, liquidity risk, and default risk including the possible loss of principle. Market Fluctuations: The value of an investment in a mutual fund scheme changes as per fluctuations in the stock market. Factors Influencing Mutual Fund NAV: Changes in interest rates, currency exchange rates, changes in Government policies, taxation, political, economic, or other developments, and increased volatility in the stock and bond markets also impact mutual fund investments. Since mutual funds are broadly classified into equity mutual funds and debt mutual funds, let us understand the risks attached to both: Risks with Equity Mutual Funds Liquidity Risk: Equity mutual funds are restricted by trading volumes and settlement periods. If there is a decline in the value of securities held in the portfolio, it may lead to funds incurring loss until the security is sold. Risks with Debt Mutual Funds Interest Rate Risk: When interest rate rises, the price of existing fixed-income securities falls and vice versa. Credit Risk: In case of default, the scheme may not receive due amounts and the NAV (Net Assest Value) of the scheme may fall into the extent of default. The risk associated with defaults on corporate bonds carries a higher credit risk than government bonds. Advantages of Investing in Mutual Funds Managed by Professional Fund Managers: Many investors may be beginners and may need to learn more about the market and where to invest. These professionals understand where to invest that reaps the maximum returns. Liquidity: Mutual funds can be easily bought and sold, which gives them high liquidity. They can be redeemed quickly and the investor has easy access to funds. Power of Compounding: Starting early with investments will reap benefits in the long run. Even with small and consistent investments, one can harness the full benefit of compounding and build a decent corpus for the future. Define Investment Goal and Risk Appetite: It is imperative to define financial goals related to the investment and evaluate one’s risk-taking capacity. For example, if the goal is to establish a steady source of income with moderate risk, one may consider debt-oriented mutual funds. If the investment goal is to retire early and one has a high-risk appetite, one should consider investing in equity-oriented mutual funds. Disadvantages of Investing in Mutual Funds Exit Cost: Several mutual funds in India like ELSS (Equity Linked Savings Schemes) have an exit cost associated with them. If one exists before the stipulated time, they have to incur exit charges. Lock-in period: Mutual fund investors cannot withdraw money before the specified time. Thus, in case of emergency, one cannot liquidate their invested amount. Fluctuating Returns: Mutual fund returns keep changes in value as per market fluctuations. This factor is important to keep in check before one invests in a mutual fund. Low Cost: Mutual funds in India are mostly low costs. The fund management fees charged by mutual funds are 1%-2.50%. Depending on the invested mutual fund, they provide you with higher returns. Tax Benefits: Under Section 80C of the Income Tax Act, investments made in mutual funds in India via the equity market offer tax benefits, up to Rs. 1.5 lakhs. Tips to Maximise Your Mutual Fund Investments Before starting with investments, it is important to clearly define the goal of investments and the level of risks one can take. Once done, here are a few tips to consider when going ahead with mutual fund investments: Regular Investments (SIP): If the investment goal is wealth creation for the long term, a good option is to start a Systematic Investment Plan (SIP). SIP is a system where you invest a fixed amount in a mutual fund consistently. Since the investment is long-term, it benefits from rupee cost-averaging. Rupee cost averaging lowers the average cost of investment and improves returns. Portfolio Diversification: Investing in diverse types of mutual funds balances out the risk factor. Maintaining a mix of equity, debt, and other mutual fund., optimizes returns and maintains portfolio stability. Monitoring and Reviewing Portfolio: All mutual funds don’t perform the same in a given market