FD vs Mutual Fund Loan: Which Costs Less?

Loan against fixed deposit is cheaper and comes with fewer charges.

Most of us dip into our investments when we need urgent money. But breaking fixed deposits (FDs) or SIP(Systematic investment plan) is not a good option.

Rather you should take a loan against your FD or mutual fund.

Interest rates and costs

Loan against fixed deposit is cheaper and comes with fewer charges.

“FD loans are just 1 to 2 per cent above the FD rate, making them a low-cost option,” says Sameer Mathur, managing director and founder of Roinet Solution.

On the other hand, a loan against equity mutual fund can attract interest rates of 9.5 to 11 per cent, with loan amounts capped at around 45 to 50 per cent of the net asset value (NAV).

Debt funds, being less volatile, may allow borrowing of up to 90 per cent of NAV at slightly lower rates, he added.

Processing fees are low for FDs

“Fixed deposits have a fixed value, while mutual funds fluctuate with the market. That’s why processing fees and charges are higher for loans against mutual funds,” says Shravan Shetty, MD, Primus Partners.

When to choose what

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.

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Feature Presentation: Ashish Narsale/Rediff