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    Taking Out An Online Loan Against Mutual Funds

    Coins in jar. Writing Mutual Fund on two jar with wooden pallet background. Selective focus with shallow depth of field.

    Not everyone is familiar with the option of taking out an online loan against a mutual fund. Those looking to secure a loan and those who have managed to do a little digging, may stumble across this interesting and often overlooked option. 

    Mutual funds can be beneficial in loans as they typically give good returns and can be a valuable asset during a financially difficult time. Mutual loans can usually be used as security to obtain a loan from a bank. 

    Sounds interesting? Read more to learn everything you need to know about taking a loan against a mutual fund and why this might be a great option for you.

    What Is A Mutual Fund?

    The first step in understanding if this loan type is right for you is answering a fundamental question- what is a mutual fund? To put it simply, a mutual fund is a type of investment. A fund is made of multiple types of investments like stocks, bonds, and cash, and this is referred to as the portfolio. 

    Usually, a fund manager, also known as a portfolio manager, is in charge of deciding how to invest the money. The manager is paid a fee for their services, which will come from the money within the fund. Mutual funds are popular types of investments as they offer key benefits to smaller investors. These benefits include: 

    • Low cost
    • Diversification
    • Strategy
    • Ease of investing
    • Professional management

    For the most part, mutual funds are a safe investment, so investors are drawn to them. They make for great long term investments, and short term dips in the market are relatively not a concern to fund holders. 

    You should choose a mutual fund that is aligned with your overall investment goals and long-term financial vision. Find a fund manager with experience and a solid reputation, and you’ll be on your way to a solid financial future.

    What Does It Mean To Take A Loan Against A Mutual Fund?

    Mutual funds are unique in that you may be able to take a loan out against your mutual fund. How does that work? Essentially, it works like an overdraft facility once you, the borrower, pledge your mutual fund holdings to the lender. The lender then attaches a lien on your investment. Then you pay interest on the amount of the loan you’ve used. 

    The lien on your mutual fund is lifted once you’ve repaid the loan, and you’ll once again enjoy total ownership of your mutual fund investment.   

    How Does It Work?

    Taking out an online loan against your mutual fund might require you to perform some research and homework to understand the process completely. Of course, you’ll want to pay careful attention to terms, fees, and penalties to minimize risk and ensure you have the ability to pay your loan back. 

    Taking out a loan against a mutual fund works like this: 

    • Taking out a loan against securities means it’s likely slightly cheaper, between 11% to 13% than a standard personal loan 
    • Lenders are likely to offer up to 50% of the NAV (net asset value) of equity-based funds, making this an attractive option for many 
    • Your online loan may be rolled out quickly so you can continue investments and earning important dividends 

    Be sure your lender walks you through every step so you can understand the process fully. Total transparency will allow you to make the right decision for your financial situation and save you from any harmful missteps.

    Who Is Eligible?

    Not everyone interested in taking out an online loan against their mutual fund is eligible to do so. Lenders have standards, requirements, and regulations in place that borrows must meet in order to be eligible. These requirements may include: 

    • Not all mutual funds are eligible for a loan. Your lender will be able to tell you whether or not your mutual fund qualifies 
    • Your lender may require you to provide additional documentation of your financial health such as a proven history of on-time payments and a good credit score 
    • Your eligibility may vary lender to lender, so research several lenders in order to find the right deal 

    Bottom Line

    Not everyone looking for a loan realizes they can take out a loan against their mutual fund holdings. If you’re an investor with an established portfolio, consider using your assets to get the loan you desire. You’ll need to explore your options and research vendors, but with a little effort, you might find a wonderful loan option to fit your financial needs perfectly.

    Most likely, the better credit you have, the better loan you can get. Those with a strong credit history and healthy financial situation are more likely to enjoy the benefits of a personal loan, unlike borrowers with poor credit.

    That said, some companies specifically work with individuals without a strong credit history.

    Bottom Line

    If you’re considering a personal loan, then be sure to check out the market and do your research.

    LoansUnder36 and Upstart are great places to start. However, the loan you end up choosing needs to be right for your specific situation. 

    Take an honest look at your ability to repay and then decide what terms, fees, and sums are a good fit for you and your lifestyle.

    With a little extra research, you’ll be well-informed and comfortable enough to take on a personal loan. 

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