I am 47 years married and residing in Mysuru. I have been a steady investor in equity mutual funds for the last 8 years and my equity mutual fund portfolio is INR 15 Lakhs. I plan to start a business and need about INR 10 Lakhs. Should I sell my equity mutual funds and finance the business? Kindly advice?
If you need money for business, liquidating your mutual fund investment is not the only option. You can approach a bank or non-banking financial company (NBFC) and request for a loan or overdraft against your mutual fund investments. The interest rate is much lower than a business loan. For equity-based mutual funds, you can get as much as 50% lending on the Net Asset Value (NAV) of your funds. Some banks have limits on the minimum and maximum loan amount you can avail when opting for loan against mutual funds. The bank would consider your loan request after seeking a lien on the units in the name of the bank. Keep these points in mind before opting for loan against mutual funds. Loans are granted only against the list of approved mutual funds or mutual fund schemes as determined by your bank. You cannot redeem any fund units during the loan tenure but you can continue to receive dividends. If you default on your loan, the bank can invoke the lien and request the mutual fund company to redeem your units for loan repayment. Once you repay the loan, the bank will lift the lien and you get the rightful ownership of your mutual fund units.