At present, due to revolution in the financial system, it is now possible to borrow funds against mutual fund and insurance policies. Many banks and NBFCs are offering loan against these funds. The applicant needs to pledge the mutual fund unit as security for the loan. As it is a secured loan the interest rates are much lower than unsecured personal loan. A lien document is signed in the name of the lender to give him ownership of the fund units.
1. It is a kind of overdraft loan with no fixed tenure.
2. Getting loan against the mutual fund or insurance policy is an easy easy process with no extra documentation.
3. When a loan is taken against the mutual fund the applicant still own them; but they cannot sell them until the repayment of loan.
4. These kinds of funds are a bit expensive and vary from bank to bank.