Previously people used to keep their Gold to the Gold merchants and get the money as a loan and then slowly that has been moved to the house. If you have a house, you can actually get a loan against your property. And then now people who are moving away with the Gold and Real Estate can use their shares and mutual funds to get the loan.
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People who have urgent requirement of money can actually keep their assets and not sell it but at the same time can use that assets to get the money as a loan. The criteria might be different in different brokerage house, but mostly you can get upto 50% of the loan amount of your assets. But there is a maximum limit which is 20 Lakhs and minimum is 50K.
The good thing about the loan against the mutual funds is that the interest is lower than the personal loan as well as credit card loan. For example, you have some urgent money requirement and you know you will be able to pay in some months. Instead of redeeming the mutual funds or taking the loan from other places you can take the loan from the mutual fund itself.
The compounding effect will continue to work in your mutual fund which might not happen if you redeem it. So that's why taking the loan against the mutual fund is a great idea. So you can take the loan in less interest rate as well as you don't have to redeem your assets. Just like the loan against the property as well as loan against the gold loan, these loan against the shares and mutual funds work.
The loan against mutual fund is of low duration like only upto 36 months, but you should try to complete as much as possible.
