No matter how effectively we plan our finances, it often happens that we find ourselves in situations where we need emergency assistance, such situations could be medical emergencies, unforeseen expenses, business requirements etc.
Most of the time we rely on personal or credit card loans to handle such situations, but the rate of interest for these loans could be really high. Today I am going to tell you a way to get money at much cheaper rates.
If you have some investments in stocks and mutual funds, you can use them to get a line of credit. This line of credit will allow you to take any loan of upto 80% of your investments value at a very low interest rate. Also, you only have to pay interest for the amount you use and only for the duration you take it, and not the whole credit line.
Let's suppose you have 4 lacs of mutual funds & stocks, against which you get a credit line of 2 lacs, for simplicity let's suppose the interest rate on credit line is 12% for 1 year (actual interest rate is as low as 9.9%), Now you take 1 lac Rs from your credit line and use it for 15 days only, Interest per month is (12% / 12) = 1% and Interest rate for 15 days is 0.5%, so the interest you pay for using 1 lac for 15 days is (0.5% of 1 lac) = Rs 500/- only
Why take a credit line and not sell-off your investments?
Most people make the mistake of selling off their investments during the time of emergency for short term needs, always remember that you have made investments for the long term and selling them for something short term is not a logical move.
For example the interest rate on a loan on your line of credit will be around 10.5% per annum, and expected returns from equity investments are around 15%, so you will still be making 4.5% per year on your money while holding your investments and taking a loan against them, and your loan would virtually be free!
So it's time to make your investment work 2X harder and help you with your money needs.
How much credit limit can you get?
You can typically get a credit limit of upto 80% of the total value of your investments in stocks and mutual funds.
How to get a credit line?
Getting a line of credit is completely FREE and digital. Just go to INDmoney app and apply to avail a credit line against your investments, the complete process only takes a few clicks.
Once your line of credit is activated you can avail a loan for any amount up to the limit of your credit line in a few moments. You only have to pay interest for the amount of loan you take and not for the whole credit line.
Getting a credit-line is such a logical and obvious financial decision but due to lack of knowledge of finance and awareness, most people choose to sell their high quality investments or take high interest credit card or personal loans and end up paying much more unnecessarily.
Thanks for Reading
0 Comments