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Most of us plan for our dreams and goals such as buying a property, retiring, a child’s higher studies, etc. Today most of us believe in equity investments like shares and equity mutual funds instead of savings bank accounts & fixed deposits to finance our goals. Hence, we see a growing number of retail investors for both mutual funds and shares.

In the midst of planning for long-term or wealth generation, we forget to plan for a lot of short-term expenses like traveling, renovating a home, or an office and don’t have enough for unplanned expenses like medical expenses, shifting cities, etc. 

Home renovation, moving to cities, etc. can be an expensive affair, and you may not have enough funds in your corpus or have money parked in investments for all these expenses. In such a situation, most investors tend to redeem their long-term investments and avoid the idea of a loan against mutual funds or shares as most of us are not aware of or feel it is too complicated.

Why one should not redeem long-term investment for short-term needs 
The expected return on your equity mutual funds is more than the interest rate on a loan against mutual funds. For example, let's assume you have invested Rs. 8 lakhs in mutual funds and you want to renovate a home that will cost you around Rs. 3 lakhs. You aim to redeem mutual funds and aim to reinvest in 10 months with a SIP of 30,000 a month. 

Instead of redeeming your mutual fund investment, you can opt for a loan against mutual funds. You can pledge your mutual fund units as collateral and obtain a loan of Rs. 3 lakhs (45% of the collateral value). 

Let’s compare numbers in case of redemption vs retaining the investment (assuming you earn 10% CAGR on your mutual funds and for simplicity let’s consider returns are linear and each month you will outflow 30,000 either towards monthly SIP or towards LAS repayment).

 Mirae Asset Financial Services can be a great option to manage your short-term expense.
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Mirae Asset Financial Services can be a great option to manage your short-term expense.

So, by retaining your investments, you will have an additional income of INR 11,955/-.

If you earn less than 5% CAGR only then you will incur a loss whereas your interest paid is higher than returns earned. In reality, returns may not be as linear as in the example. However, returns data has shown equity investments held for more than 5 years have generated wealth for investors.

So, we have tried to answer why someone should not redeem long-term investments for short-term needs. Now let’s see how you can easily avail loan against mutual funds and shares.

How you can easily avail loan against mutual funds and shares with Mirae Asset Financial Services 
Availing of a loan against mutual funds and shares with Mirae Asset Financial Services is simple, fast & hassle-free. You can simply download the Mirae Asset Financial Service App or visit the website https://www.miraeassetfin.com and complete these 5 simple steps.

Steps to avail loan using the Mirae Asset Financial Services app.
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Steps to avail loan using the Mirae Asset Financial Services app.

Your loan account against mutual funds can be completed in just 15 mins and a loan against shares can be completed the same day without any branch visits, tons of documentation, and waiting for days.

Thus, with a convenient application process, quick loan account creation and attractive rate of interest and features, a loan against mutual funds or shares with Mirae Asset Financial Services can be a great option to manage your short-term expense and continue to retain your investments and generate wealth in the long term. 

Disclaimer: This article is a promotional feature and does not have journalistic/editorial involvement of Hindustan Times. The content may be for information and awareness purposes and does not constitute any financial advice.

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Updated: 22 Mar 2023, 01:02 PM IST
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