Is It a Good Idea to Take Out a Personal Loan to Invest in a Mutual Fund?

Investing money in mutual funds is a quick way to earn good returns and build wealth. If your savings are insufficient or you don't want to put your emergency funds at risk, consider borrowing a Personal Loan for investment to buy mutual funds. However, remember that mutual funds are market-linked investment products that carry an element of risk. If the market does not turn in your favour, you may lose the investment amount rather than earning any returns.

In the following sections, we will discuss whether using a loan for investment in mutual funds is a good idea.

What is a Mutual Fund?

Mutual funds are collections of investments into bonds, stocks, and other securities from multiple investors. If you invest in a mutual fund, you become a part owner of the fund assets. Professional fund managers manage these funds and invest them in various assets and money market instruments. As the market rate of these mutual funds increases, you earn money on your investments and build wealth. However, since they are market-linked, they may sometimes result in a financial loss as per the mutual fund market performance.

Understanding a Personal Loan

A Personal Loan is an unsecured funding option that provides money for various purposes. Many people use these loans to cover their personal expenses, such as weddings, education, home renovation, travel plans, debt consolidation, etc. Since you don't need to disclose the purpose of borrowing to the lender, consider using a Personal Loan for investment in mutual funds. 

At Hero FinCorp, you can get a Personal Loan of up to Rs 5 Lakh online. Key features include competitive interest rates (starting from 1.58% per month), flexible repayment tenure (12-36 months), and instant loan approvals when you apply online.

What Motivates Investors to Use Personal Loans for Investments?

Mutual fund investments help achieve various financial goals, such as building a corpus, buying a car or house, financing a child's education or marriage, etc. However, consider borrowing a Personal Loan to leverage the investment options if you don't have enough funds to invest in mutual funds. Here are a few advantages of Personal Loans that motivate investors to use a loan for investment in mutual funds:

• No need to provide an asset as collateral
• No down payment required
• Competitive loan interest rate
• Flexible repayment tenure for pocket-friendly EMIs
• Keep your savings intact for emergencies and other expenses

When Does Using a Personal Loan for Investments Make Sense?

Before borrowing a loan for mutual funds online, you must ensure that the fund returns are higher than the Personal Loan interest rate you pay. If not, the risk of loss will increase, adding to your debt burden. Here are a few times when using a loan for investment in mutual funds makes sense:

• If you have researched the market and are sure that your chosen mutual funds are sound
• If the return on investment outweighs the total loan cost
• If you have measured the risk and its impact on your finances
• If you have a backup plan for loan repayment in case of a financial loss

Also Read: Should You Take a Personal Loan to Invest in the Stock Market?

Pros And Cons Of Taking Out A Personal Loan To Invest In A Mutual Fund

Before taking out a loan for investment in mutual funds, let’s look at the pros and cons of doing that:

Factors to Consider Before Taking a Personal Loan for Mutual Funds

If you plan to invest in mutual funds with an investment loan, here are a few factors to consider:

• Research the market and know the trends before investing. 
• Check your finances and be prepared for repayment if you default.
• Understand the loan details and borrow adequately.
• Make an informed borrowing decision after calculating the risks involved.
• Evaluate your income and expenses before investing in mutual funds with a loan.

Also Read: Loan Against Securities or Personal Loans: What Should You Opt for?

Steps to Get a Personal Loan with Hero FinCorp

Using an instant loan to invest in mutual funds can be a lucrative idea. However, you must be prepared for the risks involved. Here is how to take a loan for mutual fund investments:

• Visit the Hero FinCorp website or install the personal loan app.
• Reach the Personal Loan section and click ‘Apply Now’.
• Check your eligibility to ensure you qualify.
• Verify your KYC and enter the OTP received on your registered mobile number.
• Double-check the information before submitting the loan application.

Once approved, you will get the loan amount in your account quickly.

Conclusion

Before using a loan for investment in mutual funds, remember that you must bear the loan’s cost irrespective of the investment’s performance. Thus, evaluate your financial capacity, risk appetite, and return goals before borrowing a Personal Loan for investment.

Frequently Asked Questions

1. Can I take a Personal Loan and invest in stocks?

You can take a Personal Loan to invest in stocks. However, you must measure the risk involved before applying.

2. Can I get a Personal Loan to buy shares?

You may get a Personal Loan to buy shares. However, borrow wisely and have a backup plan in case of a financial loss.

3. Can I borrow money to invest it?

You can borrow money in the form of a Personal Loan to invest it in mutual funds and other investment products.

4. Is it possible to borrow stocks?

Borrowing stocks is possible through a process called securities lending. You can borrow stocks from other investors or a brokerage firm and use them for short selling. However, you must pay the fee for the service.

Disclaimer: The information provided in this blog post is intended for informational purposes only. The content is based on research and opinions available at the time of writing. While we strive to ensure accuracy, we do not claim to be exhaustive or definitive. Readers are advised to independently verify any details mentioned here, such as specifications, features, and availability, before making any decisions. Hero FinCorp does not take responsibility for any discrepancies, inaccuracies, or changes that may occur after the publication of this blog. The choice to rely on the information presented herein is at the reader's discretion, and we recommend consulting official sources and experts for the most up-to-date and accurate information about the featured products.