Everything You Need to Know About Loans Against ELSS Mutual Funds
Key Takeaways:
- ELSS mutual funds are excellent loan options, helping you retain long-term financial stability while meeting temporary financial setbacks.
- ELSS mutual funds have lower interest rates and higher tax deductions.
- The market volatility plays a crucial role in determining your LTV ratio.
- Loan against ELSS mutual funds offers convenience and instant liquidity.
Whether you’re looking to finance a personal project or manage cash flow, understanding loans against ELSS mutual funds can be crucial for smart financial planning.
Today, you can take a loan against ELSS mutual funds – a flexible and tax-efficient scheme helping you accumulate wealth over time while meeting temporary financial setbacks.
Modern investment allocation initiatives empower you to make strategic plans that address your current financial problems while keeping your long-term plans intact.
Let’s explore what ELSS mutual funds are and how valuable they are.
Understanding ELSS Mutual Funds
An Equity Linked Saving Scheme (ELSS funds) is an investment plan with dual benefits that allows you to save taxes under Section 80C of the Income Tax Act of 1961 without liquidating your mutual fund units.
When you invest in ELSS funds, you become eligible for tax deductions applicable under Section 80C of the Income Tax Act.
In addition, you can also take a loan against ELSS mutual funds should you experience temporary cash shortages during the tenure instead of withdrawing your long-term investment.
Key Features of ELSS Mutual Funds:
- 3-year lock-in period
- Diverse investment portfolio
- Higher returns compared to traditional investments
Here’s How It Works:
By investing in the ELSS fund, you get the opportunity to invest in different company stocks.
Now you don’t blindly invest in just about any company stock.
Instead, a proportion of your investment is invested in a specific company and industry sector.
The purpose of this is to maximize your investment in the long run.
Of course, you must conduct extensive research to diversify your portfolio and mitigate risks – a crucial decision for which you must seek professional guidance.
For example, some ELSS mutual funds can turn 1.5 lakh INR investment into 1 crore INR within 2 decades.
Understanding ELSS mutual funds is essential for placing your investments in the right stock. And for that, you need to consult a professional.
Process of Taking A Loan Against ELSS Mutual Funds
Suppose you’re experiencing short-term cash shortages; it could be due to a medical bill or an urgent car repair.
Your first thought would be to dissolve your financial investment and use that money to meet current cash constraints.
But what if we told you that there’s a better alternative?
Instead of withdrawing from your ELSS mutual fund investments, you can take a loan against them.
By taking a loan against your ELSS mutual funds, you can get quick access to money without liquidating your mutual fund units.
It’s a flexible arrangement that allows you to borrow money using your ELSS mutual fund units as collateral.
And, what’s so great about this scheme is that you can continue earning from your profit returns and leverage tax deductions under Section 80C of the Income Tax Act.
A loan against your ELSS mutual funds is an ideal way to meet temporary financial crunches without terminating long-term investments.
Checklist for Its Eligibility Criteria
- You should be self-employed or a salaried individual
- Resident of India
- Proof of identity (Aadhar card, PAN card, Passport, Voter’s ID)
- Proof of income (income tax returns or bank statements)
- Age range between 18 and 65
- ELSS funds should be free from a lock-in period or else the borrower cannot leverage them for a loan.
6 Important Considerations Before Taking A Loan Against ELSS Mutual Funds
You can save up to 1.5 lakh in a fiscal year by taking a loan against your ELSS mutual funds.
In addition, some ELSS funds that offer a 15% CAGR every 3 years.
Considering so many benefits, you may be inclined to invest in ELSS mutual Funds immediately – and all of that is great – yet, there are a few key features of ELSS mutual funds that you should know about before taking a loan against them.
Let’s take a look at them.
1. Interest Rates
Interest rates for taking a loan against ELSS Mutual Funds vary from lender to lender.
What’s great about them is that they are extremely feasible – especially if you compare them with credit or personal loans.
50Fin allows you to take a loan against your ELSS mutual funds at an interest rate of 10.5% per annum.
Moreover, the loan is secured within 7 minutes and the amount gets disbursed into your bank account within 4 working hours.
And the best part? The process is completely digital.
So, unlike other loan applications, this one is a smooth ride. You can call it a zero paperwork loan solution that has no CIBIL requirements.
And should you consider redeeming your investment in the future, there would be zero foreclosure charges.
And as for the repayment, you’ve got easy monthly installments.
2. Loan To Value Ratio
The amount of loan you can get is derived from the value of mutual fund units you pledge. This is known as the LTV (loan-to-ratio).
The lender decides the amount and is a specific percentage of your mutual fund units.
3. Market Volatility & Risk Management
Like any other stock investment, the ELSS funds are also influenced by the market and economic conditions.
And, it becomes more evident when you take a loan against them.
4. Tax Implications
While ELSS mutual funds have several tax advantages, they might be reduced slightly when you use them as collateral.
In addition, you must know that the interest you pay is not tax-deductible. So before you consider taking a loan, make sure you estimate the overall cost of the loan.
5. Early Exit Charges
There are some ELSS mutual fund loans in which you have to pay exit charges.
While 50Fin has zero foreclosure charges, some financial institutions make it a mandatory clause during loan agreements.
Usually, the investment period of ELSS mutual funds is 3 years.
So, if you decide to sell your investment before that time, you’ll pay exit charges that might take a huge bite out of your profit returns.
Top 5 Benefits of ELSS Mutual Fund Loan
Taking a loan against ELSS mutual funds can actually be a turning point for you.
It is a huge decision that will impact your long-term financial health while helping you navigate temporary financial crunches.
Let’s explore the top benefits of taking a loan against your ELSS mutual fund units.
1. Convenient
The most undeniable benefit offered by ELSS mutual fund loans is convenience. The process of securing this loan is unmatched.
Firstly, the entire process is digital with 50Fin.
You can secure the loan within minutes and get the loan amount disbursed into your account on the same day. It has literally four steps and minimal paperwork.
Imagine sitting through stacks of physical paperwork, restlessly waiting for your chance to meet the financier and convince them of your credibility. Painful, right?
With 50Fin, all of this noise gets canceled and you get to secure a loan against your ELSS mutual funds in less than a day.
2. Instant Liquidity
The fact that you can access funds by using your mutual fund units as collateral is reflective of how far we’ve come as an industry.
Today, you can apply for a loan by filling out an online application and have the amount disbursed into your account within minutes.
All of this is possible without terminating your long-term investments.
This quick and easy process makes loan taking a seamless option.
3. Profit Returns
The best part about this financial arrangement is that you continue earning profits from your investments.
So while you’ve taken a loan against your mutual funds on one hand, your investments are still intact on the other.
4. No Foreclosure Charges
With 50Fin, you pay zero foreclosure charges by taking a loan against your ELSS mutual fund units.
This way, you avoid the foreclosure claim that eats up your entire profit return.
5. Retain Ownership
And here is the final part – you continue to have rights over your mutual fund units.
This investment was a huge leap for you, so, while you’ve temporarily used them as collateral, your ownership remains intact.
4 Actionable Tips for Taking A Loan Against ELSS Mutual Fund
- Evaluate your financial needs and strategize your repayment plan.
- Gather all the necessary information in one place.
- Compare different interest rate options and repayment schedules.
- Thoroughly read the loan agreement form before signing it.
The Bottom Line
Loan against ELSS mutual fund offers dual benefits, giving you flexibility with tax-efficient results.
The process of taking a loan against your ELSS mutual funds is simple, requiring minimal paperwork and same-day amount disbursement.
With 50Fin, it becomes even more seamless considering zero foreclosure charges.
Sign up now at 50Fin and fulfill your borrowing requirements against your mutual funds.
Get FREE Eligibility Report
Instantly check your eligibility for Loan Against Mutual Funds
- No Minimum CIBIL Required
- 100% Digital
- 4 Working hour disbursal
Looking for Loan Against Stocks?
Recent Articles
With 67% of Indians taking a personal loan at least once in their lifetime, here’s everything you need to consider to secure the best personal loan.
From earning varied profit returns annually to taking a loan against mutual funds, here are 5 things you should know before your first mutual fund investment.
From weddings to emergencies, the issuance of types of loans has already increased by 30.94% in March 2024 in India. So how can you choose the best one?