Retail investors frequently liquidate their holdings during emergencies or crises, jeopardizing their long-term goals in the process. According to a press release from Mirae Asset Financial Services, a number of investors are now observed successfully leveraging mutual fund units—which serve as the new collateral—without liquidating them in order to meet their immediate needs.
With individual investors’ Assets Under Management (AUM) reaching Rs 34.5 lakh crore, the number of mutual fund investor accounts has surged. Although 88% of contributions from individual investors go toward equity-oriented schemes, only 59% of these assets are held for more than 24 months. This suggests that ordinary investors have a propensity to redeem mutual funds when they want liquidity for unanticipated expenses or emergencies like medical bills.
Along with an alluring interest rate as compared to unsecured personal loans among other things, another benefit of using mutual fund units as collateral is the easy method of pledging and withdrawing them without any difficulties involving physical transfer, unlike other forms of collateral like gold or real estate.
Growing consumer demands are driving the expansion of retail credit, and mutual funds are predicted to perform well in India. This will lead to more flexible and affordable secured loans supported by modern collateral that doesn’t compromise long-term investment goals.