In an emergency, when you need quick access to funds, deciding between various options can be overwhelming. Should I take a personal loan or tap into your mutual fund returns? Can I get loan against mutual fund? Instead of waiting for a crisis, it’s wise to understand your options ahead of time so you can make a clear, informed decision when it matters most.
This guide helps you compare two of the fastest ways to secure cash: loans against mutual funds and personal loans. Both options offer quick access to money, but they come with different terms, interest rates, and benefits. By knowing the pros and cons of each, you can choose the one that suits your financial needs when the unexpected happens. Let’s explore which option is best for you in a time of need.
What is a loan against mutual funds?
Essentially, a loan against mutual funds is using your mutual funds as collateral to get a loan to ensure that you pay your loan money on time. Once you have paid your loan money back, you will get your mutual funds back. But what is great about a loan against mutual funds is that even while it is on collateral, the mutual funds are not frozen, so you will still get your returns on them. A point to be noted here is that the bank will compare mutual funds and will decide which mutual fund will be used as collateral for the investments.
Many investors prefer taking a loan against mutual funds for this very reason. You get instant cash in exchange for your mutual fund.
What is a personal loan?
A personal loan is a loan amount you borrow from a financial institution for various purposes. You could use it to plan a wedding, for home renovations, or to consolidate a debt. This money that you borrow must be paid over time, with an interest. A few personal loan lenders also charge you a fee when you take a loan from them.
Advantages and disadvantages of taking a loan against mutual funds:
- Secure loan: A loan on mutual fund is a secured loan. Yes, this does mean that the processing time takes longer than that of a personal loan, but this is because of how secure the loan is.
- You can use your loan against mutual funds for multiple reasons, such as medical emergencies, travel, and education.
- Depending on the financial institution you choose as a lender, you can get a loan ranging from Rs. 50 thousand to 20 lakhs. Some institutions may provide a higher loan amount.
- A credit score doesn’t hinder the chances of you getting the loan approved.
- Interest rates of the loan are generally low since they are secure.
- There is no need for a prepayment penalty.
- The loan is given as an overdraft facility. Withdrawal, tenure, and repayment periods are flexible.
Advantages and disadvantages of a personal loan:
- Personal loans are not secured because you don’t provide collateral for the loan.
- The tenure of the loan can be between 12 months to 60 months.
- A good credit score is necessary to get a low interest rate on your loan.
- Charges such as processing fees, service charges, and insurance loans since the loan is not a secured loan.
- The loan disbursal process for personal loans is fast. Here, the leader can get a loan offer ranging from Rs. 20 thousand to Rs. 40 lakhs.
- The documentation process is quick and simple. The documents you require to apply for the loan include ID, Address proof, and an income certificate.
When choosing between a personal loan and a loan on mutual funds, understanding the key differences is crucial. A loan against mutual funds is secured, offers lower interest rates, and allows you to continue earning returns on your investment while using your funds as collateral. On the other hand, personal loans are unsecured, have faster processing times, and are ideal for borrowers with strong credit scores. Both loan options have their advantages depending on your financial needs and urgency. By weighing the pros and cons, you can make an informed decision that best suits your emergency.