Will HDFC Bank’s Loan Against Mutual Funds Scheme Help Homebuyers?

After launching a digital loan against securities model in March this year, HDFC Bank has now tied up with transfer agent Computer Age Management Services (CAMS) to provide its customers automated loans against mutual funds (MFs). In a matter of three minutes, a customer could avail of loans ranging from Rs 1 lakh to Rs 1 crore at an interest rate of 10.5-11 per cent by pledging mutual funds. A customer, however, will be able to avail up to 50 per cent of his investment only. This means that in case of an emergency a customer’s mutual fund portfolio will allow him to get credit without them having to liquidate their investments.

While the bank "hopes to reach out to customers in the Tier-II and Tier-III markets and bring them into the digital lending fold", it is also making available fund to first-time borrowers who do not have any credit history. Initially, HDFC Bank customers holding assets in at least one of the 10 mutual fund houses registered with the CAMS can use the facility. The bank plans to extend this facility to other fund houses by and by.

How does this heal a homebuyer?

There is only so much money that a borrower could avail of as a home loan. Often, home-buying plans may go haywire mid-way because of lack of funds—several expenses emerge out of nowhere that a buyer might not have factored in at the initial stage. The LAMF facility would come to the rescue of such a borrower. However, the loan amount should be kept as low as possible, considering the rate of interest on this loan is much higher than the rate on home loans. Currently, leading banks are offering home loans interest rates ranging between 8.35-9 per cent.