HDFC Bank to offer digital loan against mutual funds

Mutual funds rep Representational image

Need emergency funds, and quickly? Your mutual fund investments could come to your aid.

Over the last two years, investments in mutual funds by Indians have surged. Now, you can leverage the fund portfolio and avail a loan against it in a few minutes.

Perhaps, to cash in on the growing mutual fund customer base, and to further expand its retail lending portfolio, HDFC Bank has launched a new digital product called loan against mutual funds. Typically, if you were to sell off your mutual fund units, it would take three days for the units to be redeemed and the money credited back to your bank account. Through the HDFC Bank product, you can get a loan in a few minutes without any physical paperwork.

The product has been launched by HDFC Bank in partnership with transfer agent CAMS. The product is only for HDFC Bank account holders, although the mutual funds may have been brought from any distributor or directly through any mutual fund's website. The funds also need not be in a dematerialised form.

How it works is that one needs to log in to myCAMS through the HDFC Bank website, select the mutual funds from his/her portfolio that would be pledged, accept the terms and conditions and input a one-time password; following this, an overdraft facility will be ready to use in the customer's account.

One can get a loan of Rs 1 lakh to Rs 10 lakh against equity mutual funds and up to Rs 1 crore, if one is pledging debt fund units. The interest rate charged on such loans will be around 10.30 per cent to 11 per cent. Since, it is essentially an overdraft facility, there will be no fixed tenure for the loan.

The interest rate will be charged once the customer has used the funds.

For now, this product will only be available through CAMS, which covers 65 per cent of the mutual fund market and mutual fund schemes of 10 fund houses.

“If you are selling mutual funds, it will be two-three days to get your money back. Through this product, you can get the loan amount in minutes. Also, in emergencies, customers will not be forced to liquidate assets at less-than-optimal market conditions. They can instead design their own loans to tide over the cash crunch,” said Arvind Kapil, group head, unsecured loans at HDFC Bank.

Given that markets can be volatile and therefore the value of the investment too can rise and fall sharply, the amount of loan that one will get against the mutual funds is capped at 50 per cent of the fund value, as per regulations.

HDFC Bank also offers loans against equities and its current size of the portfolio, which includes loan against equities, MFs and insurance is over Rs 10,000 crore, Kapil said. Of the total personal loans, around 25 per cent to 30 per cent are digital loans, added Kapil.