“The fundamental risk of pledging mutual funds is that the market can fall, and the lender may ask you to top up the loan. FD principal does not fall as it does not involve capital market risk,” said Ranjit Jha, managing director and chief executive officer of Rurash Financials.
For safety and predictable costs, experts lean towards FDs. “Loan against FD always makes more sense as you get the most competitive rates without fluctuation of the principal,” Jha said.
However, pledging mutual funds can work for those willing to leverage. “Some investors borrow against mutual funds when they expect markets to rise and want to magnify their gains. For instance, if markets go up 30 per cent, a geared investor could make around 45 per cent, minus interest costs,” Jha explained.
Full Article Link: https://www.business-standard.com/finance/personal-finance/fd-or-mutual-fund-loan-experts-break-down-the-cheaper-way-to-raise-cash-125090900965_1.html