MF Corner: Experts discuss hybrid funds. & the use of loan against securities for better investments.
On aggressive hybrid fund, an expert said, “This is a very unexplored type of terrain, and we have picked up this aggressive hybrid category, were inadvertent there is a general notion that because of the balanced type of a combination or an assortment, these funds are generally less risky. Now, we are not going to talk about the equity part in the aggressive hybrid category, what we are going to stress is the debt component. As much as SEBI has tried to regulate, they have done a fairly reasonable job. They have been very good taskmasters as this is one category, where in the debt component, when the scheme adheres to the normal debt norms, the story ends there. Because after that, it is like an open playing field, where many of the quality of papers if you see, there is no cap on it, or if you see, there is no regulated mandate on that.”
On loan against securities (LAS) Sachin Parekh said, “In the event of an emergency, you generally have the following options. You can take a soft loan from your family and friends, credit card loans, personal loan, gold loan, or break your old investments like fixed deposits and mutual funds. The problem is that credit card and personal loans carry high interest rates and have a lock-in, and also selling old investments disrupt your long-term strategic goals and give rise to reinvestment risk when things normalise. So, the best way to tide over an emergency is to have an emergency corpus.”
“But for example, if you don’t have an emergency corpus, then you can opt for a loan against securities. You can use your investments as collateral instead of an outright sale. Securities that can be used for LAS are mutual funds and your equity shares,” he said.
On the working of LAS, he said that the lender, typically a bank or NBFCs will mark a lien on the units or the shares and on the percentage of the holding value.
The lending percentage ranges from 50 percent to almost 100 percent depending on the type of the security which is a lien. Generally, the transactions are blocked on the units and lien units are shares. That basically means you cannot switch or redeem the lien units and shares and interest is charged monthly and payable in the subsequent month.
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