The past few years has seen the mutual fund industry changing gears and moving from a paper-dependent system to a paperless digital ecosystem. Online platforms, net banking and UPI have made transactions convenient and seamless. Adding to the basket of digitisation HDFC Bank has launched a facility offering instantaneous online loan against mutual fund units.
Read on to know more about HDFC digital loan
What are digital loans?
These are online loans introduced by HDFC Bank in partnership with registrar and transfer agent CAMS. Here, investors can keep their mutual fund investments as collateral while applying for the loan. The bank will hold the mutual fund units as security until loan repayment. Meanwhile, investors retain the ownership of these mutual fund units and the investments will continue to earn returns; however, investors cannot sell them until they repay the loan.
How can you apply for a digital loan?
To apply for a digital loan, you need an HDFC Bank savings account. The loan application process is completely paperless. At present, the bank only offers loan against schemes of fund houses coming under CAMS. However, it soon plans to add schemes serviced by other R&T agents such as Karvy.
To apply for a loan, investors can easily log in to their internet banking account and fill in basic details. The bank will redirect the application to CAMS, which will verify the account holding.
Investors can avail of a loan up to 50% of their equity fund value and 80% of their debt fund value at an interest rate of approximately 10-11.5%.
Experts’ take
Sapna Narang of Capital League feels that digitisation has made taking loan against mutual funds a hassle-free process. She also adds, “Digitisation has made it more accessible to all investors.”
Suresh Sadagopan of Ladder 7 feels that investors should not forget that at the end of the day it is like any other loan. “Investors need to realise that banks check the credit score of investors before sanctioning the loan. Thus, investors need to have a good credit score if they wish to apply for a loan. An investor with low credit score will be sanctioned the loan at a higher interest rate. To summarise, it is a good avenue to have short-term funds without hampering the mutual fund investment; however, investors need to be careful about the rate of interest charged.”
Also, the investor must explore other avenues for loans before taking a loan against mutual funds. Seasoned experts warn against borrowing against market related products to make further investments because the consequences can be harsh when the markets turn.
Here are some of the pros and cons of digital loans.
Advantages:
- It is convenient
- Bank will transfer funds to investor’s account within minutes
- It is available for both debt and equity funds
Disadvantages:
- This facility is only available on folios with single holding
- The rate of interest can be high
- Bank will charge a processing fee of Rs.1,499
