Wednesday, May 13, 2009

LOAN AGAINST MUTUAL FUND UNITS

We all know that we can avail loans against our gold jewellery,LIC policy , equity shares etc. But, did you know that you can take loan against your mutual fund units as well? Yes, you can pledge your mutual fund units and take loans against them. The unit holder will have to pledge the units of his mutual funds in favour of the bank/financial institution granting him the loan . These pledged units will serve as security for the loan sanctioned by the bank/financial institution.
How does this work?
The Units of the mutual funds will have to pledged by the unit holder in favour of the concerned bank or financial institutions. The AMC will note and record such pledged units. A standard form for this purpose is normally available on request from any mutual fund.
Can you redeem your pledged units? The pledger will not be able to redeem the units that are pledged until the entity to which the units are pledged provides the written authorisation to the Mutual fund that the pledge charge may be removed. As long as units are pledged, the pledgee (bank/FI) will have the complete control over its redemption.
Does Mutual fund have any say in loan disbursement? No. It is important to understand that disbursement of such loans will be at entire discretion of the loan sanctioning authority i.e bank/financial institution/NBFC etc. The Mutual Fund will have no role to play in this regard.
Where can you get such loan? In India, as of now there are only limited companies offering this facility. However, Birla Global Asset Finance Company is an aggressive player in this segment.

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