For investors facing short-term financial needs, liquidating mutual funds or stocks might seem like the easiest solution. However, selling investments can disrupt long-term wealth creation and attract unnecessary tax liabilities. A smarter alternative? Opting for a loan against mutual funds and shares (LAMF)—an overdraft facility that provides financial flexibility without requiring you to part with your investments.
What Is a Loan Against Mutual Funds and Shares?
A loan against mutual funds and shares allows investors to pledge their holdings as collateral to access a credit line from financial institutions. The process is entirely online, with funds available for withdrawal on the same day—offering the convenience of an automated teller machine (ATM). These loans are provided by large, RBI-regulated financial institutions, ensuring credibility and ease of access.
Why Is It Better Than Selling?
• Retain Ownership, Continue Market Growth Selling investments means losing out on potential long-term gains. Markets fluctuate, and an investment sold during a downturn may rebound later. With LAMF, you retain ownership and continue to benefit from market appreciation.
• Lower Interest Costs Compared to Other Loans The interest rate typically hovers around 10.50% per annum (subject to variation), which is significantly lower than personal loan rates. Additionally, interest is charged only on the amount withdrawn, not on the total sanctioned limit, making it a cost-effective borrowing option.
• No Fixed EMI, Flexible Repayment Unlike term loans, where monthly EMIs include both principal and interest, LAMF operates as an overdraft facility. Borrowers only need to pay the interest each month, while the principal can be repaid anytime as per the lender’s terms—sometimes allowing up to three years for repayment. This flexibility makes it an ideal solution for managing short-term cash flow needs.
• Zero Interest If Unused Establishing an overdraft limit does not mandate immediate borrowing. If you don’t withdraw funds, you pay no interest. This feature makes it a valuable contingency fund without any additional costs.
When Should You Consider This Option?
• Emergency expenses: Medical bills, urgent travel, or business cash flow gaps.
• Investment opportunities: Leverage the overdraft facility to capitalize on lucrative short-term investments.
•Avoiding capital gains tax: Selling investments may trigger tax liabilities, while a loan ensures your portfolio remains intact.
Instead of liquidating your assets, a loan against mutual funds and shares offers liquidity while preserving long-term wealth creation. Smart investors know that staying invested is key to financial growth—so why sell when you can borrow wisely?
(The author is a Chartered Accountant and CFA (USA). Financial Advisor.
Views personal. He could be reached on 9833133605. )
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