CHENNAI: Even as the Indian economy is grounded through the savings of its people, most of these funds are stacked away in the form of land, house property or gold gaining a coat of dust every year.
Insurance companies have made aware of the multitude of policies available for contingency situations, but India still has the least number of health and term insurance policies than many other countries.
Therefore, it may be acceptable to say that an average Indian does not have much in the form of liquid assets to deal with an emergency situation. However, the emergence of a growing equity market through the popularity of mutual funds among the public calls for some cheer.
Apart from fetching returns, mutual funds can also be used as a collateral to secure a loan during a contingency situation. Ideally, no investor would prefer to sell of their mutual funds when it is going through a period of correction at a time when he/she gets lower or no return at all for their investment.
A recent move by HDFC Bank has made it easier for individual investors to apply for loans online against their mutual fund holdings. The private lender has tied up with R&T agent CAMS to make loans available against the funds of 10 mutual fund companies.
Financial consultants feel that this is the first of the many banks to make this facility available in the near future.
“The quantum of the loan amount depends on what type of funds you’re holding. In case of equity funds, it may be around 50 per cent and in case of debt funds, it may be around 80-85 per cent,” says Basavaraj Tonagatti, a Bengaluru-based financial planner.
“While the interest rate on loan against mutual funds will be around 10-11 per cent, banks may also charge pledge and de-pledge fees separately to add a lien or remove it on your mutual fund units,” Tonagatti said.
“However, it is better to create a higher corpus for emergency so that you need not repay loans with a 10-11 per cent interest. The higher liquidity available in such instant loan facilities may sometimes lead to unplanned spending or expenses,” he concludes.