What Are the Risks of Taking a Loan Against Mutual Funds?
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While a loan against mutual funds offers many benefits, there are risks to consider. The value of your pledged mutual funds can fluctuate due to market volatility, potentially affecting the loan-to-value ratio. If the NAV of your mutual funds drops significantly, the lender may ask you to pledge additional units or repay a portion of the loan. Additionally, failure to repay the loan can lead to the sale of your pledged units. A loan against mutual funds is best suited for short-term financial needs, and borrowers should ensure they can meet repayment obligations to avoid financial stress.