1. Banks and NBFCs provide loans against mutual fund units as collateral, and the loan amount may vary from 50-80% of the current value of units depending on whether these are equity or debt funds.
2. The difference between the value of the collateral and the amount of loan is called the margin, and is higher (50%) in equity funds since they are subject to a higher level of fluctuation in value.
3. The dividends, if any, can continue to be paid to the original unit holder even during the lien period, unless specifically mentioned that these should be paid to the entity in whose favour the lien is marked.
4. The collateral is periodically revalued to ensure that the margin is adequate, and the units offered as collateral cannot be redeemed, switched or transferred till the lien is removed.
5. If the value of the collateral appreciates, the borrower can seek an additional loan from the lender or have a proportionate number of units freed from the lien.
6. If the units are under a lock-in, they cannot be offered as collateral since they cannot be invoked by the lender in case of a default.
7. Loans are provided at rates lower than those for unsecured personal loans, and an application has to be filed by all joint holders of the mutual fund folio to seek such a loan.
8. A lien is marked by the lender when he notifies the fund's registrar or the AMC, and it can be marked on all or a specific part of the units held in a folio.
9. If there is a default on the loan, the lender can invoke the lien and ask for the units to be redeemed, and the proceeds will be paid to the lender.
2. The difference between the value of the collateral and the amount of loan is called the margin, and is higher (50%) in equity funds since they are subject to a higher level of fluctuation in value.
3. The dividends, if any, can continue to be paid to the original unit holder even during the lien period, unless specifically mentioned that these should be paid to the entity in whose favour the lien is marked.
4. The collateral is periodically revalued to ensure that the margin is adequate, and the units offered as collateral cannot be redeemed, switched or transferred till the lien is removed.
5. If the value of the collateral appreciates, the borrower can seek an additional loan from the lender or have a proportionate number of units freed from the lien.
6. If the units are under a lock-in, they cannot be offered as collateral since they cannot be invoked by the lender in case of a default.
7. Loans are provided at rates lower than those for unsecured personal loans, and an application has to be filed by all joint holders of the mutual fund folio to seek such a loan.
8. A lien is marked by the lender when he notifies the fund's registrar or the AMC, and it can be marked on all or a specific part of the units held in a folio.
9. If there is a default on the loan, the lender can invoke the lien and ask for the units to be redeemed, and the proceeds will be paid to the lender.