Education Loan Against Mutual Funds: Process, Eligibility, Documentation

Loans Against Mutual Funds
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Education loan against mutual funds is a type of secured loan. In the secured loans category, one increasingly popular method to fund overseas studies is to pledge mutual funds for education loans just like an education loan against fixed deposits. You can get education loans against mutual funds from any public or private bank in India or any NBFC.

In today’s globalised world, pursuing higher education abroad is a dream for many Indian students and it is not very difficult due to the availability of various loans. The universities in the United States, United Kingdom, Canada, Australia, and other countries are costly, so many students prefer to take education loans. If you want to understand all the major details about education loans against mutual funds, continue reading further.

What is Education Loans Against Mutual Funds?

An education loan against mutual funds is a type of loan where students or their guardians can use their mutual fund investments as collateral. This method provides an alternative to general education loans and offers several benefits like lower interest rates and the ability to leverage existing financial assets without liquidating them. Check some of the major benefits below:

ParticularsDetails
Interest RatesEducation loans against mutual funds often come with lower interest rates compared to unsecured education loans.
Retention of InvestmentsBy pledging mutual funds as collateral, the borrower can retain ownership of their investments.
Flexible Repayment OptionsLenders typically offer flexible repayment options, including moratorium periods where the borrower does not need to make any repayments until after the course completion.
Quick ProcessingSince the loan is secured by mutual funds, the approval and disbursement process can be quicker compared to unsecured loans.

Approval Process of Education Loans Against Mutual Funds

The approval process for an education loan against mutual funds begins with the borrower applying to the lender and providing details about the mutual fund holdings. The lender then assesses the value of the mutual funds and verifies ownership. If the mutual funds meet the lender’s criteria, the loan amount as per the value of the mutual fund will be determined. Check more details below:

  • The first step is to evaluate the value of your mutual fund investments. Lenders usually consider the current net asset value (NAV) of the funds.
  • Based on the assessed value, the lender sanctions a loan amount, usually up to 50-80% of the NAV of the pledged mutual funds.
  • The mutual funds are pledged as collateral, and a lien is marked on them. The borrower continues to own the mutual funds, but they cannot be sold or redeemed until the loan is fully repaid.
  • The loan amount is disbursed directly to the educational institution or as per the borrower’s requirements.

Also Read: Check out some compelling reasons why you should consider the Central Bank of Germany for opening an international student account.

Education Loans Against Mutual Funds: Eligibility Criteria

To be eligible for a loan against mutual funds, applicants need to meet certain eligibility criteria. The students must be the primary account holders of the mutual fund units they wish to pledge. The mutual funds should be in dematerialised (demat) form and registered with recognised depositories. Check the major eligibility criteria below:

  • Banks or lenders usually require a minimum value of mutual fund holdings, which varies by institution. 
  • The applicant should be an adult Indian resident and must have a satisfactory credit score and a stable financial profile.
  • Some lenders may also consider the type and performance of the mutual funds as part of their eligibility criteria.

Documents Required

Documentation is the major stage of any type of loan processing. The bank verifies all the details provided by you based on the supporting documents. Check the list of documents required for an education loan against mutual funds below:

  • Identity and address proof (UID, Driving License etc)
  • Admission confirmation letter from a recognised foreign university.
  • Statement of mutual fund holdings.
  • Salary slips, bank statements, or income tax returns of the co-borrower (if required).

These are some of the major details and features of education loans against mutual funds. Check some common FAQs based on the same below:

Also Read: Want a secured education loan from a government bank? Check here all about SBI Education  Loan against FD

FAQs

What is an education loan against mutual funds?

An education loan against mutual funds is a secured loan where students or their guardians use their mutual fund investments as collateral to secure funds for higher education.

What are the benefits of taking an education loan against mutual funds?

The benefits of education loans against mutual funds are that you will get lower interest rates compared to unsecured education loans, retention of ownership of mutual funds, flexible repayment options, and quicker loan processing.

How does the approval process work for an education loan against mutual funds?

The process of taking education loans against mutual funds starts with the borrower applying to the lender with details about their mutual fund holdings. The lender evaluates the current net asset value (NAV) of the funds and sanctions a loan amount of up to 50-80% of the NAV.

What are the eligibility criteria for an education loan against mutual funds?

The eligibility criteria for education loans against mutual funds is very simple. Applicants must be the primary account holders of the mutual fund units, which should be in dematerialised form and registered with recognised depositories.

What documents are required to apply for an education loan against mutual funds?

The documents required for education loans against mutual funds include identity and address proof, an admission confirmation letter from a recognised foreign university, a statement of mutual fund holdings, salary slips, a bank statement etc.

Can I sell or redeem my mutual funds while the loan is active?

No, the mutual funds pledged as collateral cannot be sold or redeemed until the education loans against mutual funds are fully repaid.

To know more about education loans, the best bank accounts for students, forex and banking experience for global students or international money transfers, reach out to our experts at 1800572126 to help ease your study abroad experience.

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About Shekhar Suman

Shekhar is a versatile writer with a passion for sharing knowledge and creativity. With expertise in crafting informative blogs on study abroad and finance, Shekhar helps readers navigate the complexities of education and financial planning. Most of his writings blend the practicality of finance and the beauty of language, making a meaningful impact in both spheres. Beyond his professional pursuits, he finds solace in the writing Shayari.

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