Rahul: Hi Ram , you look a little tense ? what’s wrong ?
Ram: I have been carefully saving and investing and I don’t keep much of cash balance in my bank account . There is an unexpected high value commitment and I am stuck. I am wondering if I have to break my investments or apply for Personal Loan, which-may-take time.
Rahul: You said you been investing? Do you have any Mutual Fund Investments?
Ram: Yes, I have been investing through System Investment Plan. But I do not want to redeem them now as I have kept it for my retirement saving and long term investments.
Rahul: You can put your MF investments to work by using something called “lien facility”. Have you not heard of Lien?
Rahul: As an Investor, you have the option to pledge your mutual fund units as security to banks or other financial institutions and borrow against them. This is called lien.
Ram: I never knew of this before .How easy or difficult is getting a lien done?
Rahul: It is very easy and simple
Ram : Can you explain a bit more, since this seems to be quite interesting option?
Rahul : You can take a loan from a financier by pledging your mutual fund units. The financier marks a lien on the pledged mutual fund units. You can pay back the loan at the interest rate agreed with the financier. In the event of a default, in the repayment of loan, the financier can the pledged mutual fund units towards settlement of the loan. During the tenure when the units are under lien, you cannot redeem or switch the units.
Ram :This seems to be the easy way to solve my present cash crunch as I have accumulated substantial mutual fund investments. How do I go about getting this loan against mutual funds?
Rahul : First you will have to approach your financier. It could be your bank or any finance company. Give your latest Mutual fund statement of account. Execute the loan agreement from your financier. once you complete this, your financier will write to registrar like CAMS asking them to mark a lien on certain number of units that are being pledged by you. Remember, the lien will always be marked on units which could be more than the money that you borrow as the financiers will lend only 60 to 70% of the value of pledged units.
Ram :Any other details on the agreement to my financier???”
Rahul : Yes!!!! First …the name of the holder of units stated should match with the name in the mutual fund records. You have to provide the folio number & scheme along with the mutual fund house name. It should be noted that a lien is marked on units. If only an amount is mentioned in the loan application then it’ll be rejected
Ram : Sure. But in my case the mode of holding is joint with my wife. Am I supposed to take my wife’s signature too?
Rahul: Absolutely, you have to get it.
Ram : But when will I be notified about LIEN Marking ?
Rahul: Lien will be recorded once the instructions from your financier reaches the Registrars like CAMS. Once lien marking is done, a letter will be sent to the financier with a copy to you confirming the marking of a lien on the units. Your financier will credit the loan amount into your bank account. It’s that simple
Ram :Thanks Rahul , I better hurry and complete these formalities and get the money. I suppose once I pay back the loan, the lien marked units will be FREE!
Rahul: Absolutely !