Four financial assets against which you can avail a loan

Gold is not the only financial asset you can pledge to get a loan in the time of need. Fixed deposits (FDs), PPF, insurance policy and mutual funds (MFs) can also be used to get a loan. Moreover, loan on these assets works out cheaper than a personal loan.

Fixed deposit (FD): Banks give an overdraft (OD) facility over FDs of upto 90% of the FD value. The interest rate is 0.5% to 2% higher than the interest on FD and there’s no repayment tenure as you can pay back the borrowed money for as long as you hold the FD. Take note that you cannot borrow against 5-year tax-saving FDs.

PPF: Facility of loan on public provident fund (PPF) balance comes laden with several conditions. You can only avail a loan on your PPF balance from the third year of opening the account till the sixth year. The maximum amount you can borrow is 25% of the total balance available in your PPF account immediately preceding the financial year in which you apply for the loan. As for the interest rate, 1% is charged, but the PPF balance equivalent to the loan taken does not earn interest till the loan is repaid. The loan is to be repaid in 3 years, failing which 6% interest rate is levied on the loan.

MF/shares: Typically, banks give 50–70% of the market value of shares or NAV of mutual fund’s (MF) as loan. The interest rate on such loans range from 10-12%. Adhil Shetty, chief executive, said not all stocks or MF holdings can get you a loan. “Banks have their own list of the securities they take as collateral. They usually consider parameters like market capitalization, volatility in stock price and liquidity of the stock to decide and the loan amount can fluctuate with the market volatility. In case the value of the share drops, the lender may ask you to raise the value of the security by pledging more shares or replenishing by putting requisite cash funds.”

Equity Linked Saving Scheme (ELSS) funds cannot be pledged to get a loan.

Insurance: Only traditional policies can be pledged for loans and only after 3 years of starting the policy. You can borrow up to 90% of the surrender value of the policy at 9-12% interest. If the policyholder dies before the loan is repaid, the remaining loan amount is deducted from the claim amount.

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