‘MFDs AUM remains intact if they offer loan against mutual funds’
C R Chandrasekar, Founder and CEO, DhanLAP takes us through the concept of loan against mutual funds, its suitability for your clients and opportunities for MFDs.
Why should MFDs/RIAs suggest Loan against Mutual Fund (LAMF) to their clients?
I believe every MFD should distribute LAMF to their clients. Here are top two reasons for this:
First, the most critical problem of an MFD is retention of assets. Many investors choose to redeem mutual funds at the first instance of a financial need as other financial assets like insurance and fixed deposits are not as liquid as mutual funds. By redeeming money from mutual funds, they not only disrupt their financial plan or goal, they reduce compounding effect on their investment portfolio. Through LAMF, investors can address their short to medium term requirement and give their portfolio an opportunity to grow.
I feel that #DoNotRedeemLienMark should be the slogan of every MFD to protect the long-term goals and assets of clients.
Secondly, many MFDs/RIAs ask their clients to create an emergency fund by investing in liquid funds, which is currently delivering around annual returns of 3.5%. While sole aim of an emergency fund is liquidity during emergency, this approach can hardly beat inflation.
Instead, MFDs and RIAs should ask their clients invest their emergency corpus in an equity fund to generate better return and avail LAMF when need arises. This way, investor has to pay interest only on the amount they borrowed and the rest of their investment portfolio will continue to fetch equity returns. This strategy can have significant impact on their wealth over the long term.
Why choose Dhanlap when investors can avail loan against mutual funds from any bank?
DhanLAP is an end to end digital platform for Loan Against Mutual Funds (LAMF). There is no need of doing paper work and the loan is disbursed within 15 minutes. At DhanLAP, all schemes from all AMCs are eligible for loans. We support all kinds of bank accounts. Simply put, there are no restrictions on AMCs, schemes or bank accounts.
If you approach a bank, most of them have an offline process which takes anywhere between 7 to 10 business days to get the loan. You need to have an account in that bank or need to open a new account in that bank to avail the loan. Currently, handful of banks have online process but it is limited to schemes of certain AMCs.
Dhanlap is the only platform that can provide loan against any scheme from any AMC to any bank account within 15 minutes.
How is DhanLAP different from existing loan providers?
Existing loan providers - bank and NBFCs are mostly offline. A few online entities have too many restrictions on schemes and bank account that an investor has. DhanLAP is an end-to-end digital platform with no paperwork, no restrictions on scheme or bank account and we disburse loan in just 15 minutes.
Unlike other providers, where investors have to do repayment in lumpsum mode with interest, DhanLAP provides both options - EMI as well as balloon (lumpsum) for repayment. In EMI option, investors have to pay only 60% of the interest (compared to balloon option) as he/she pays the principal along with it, every month. This essentially means that overall interest payment on the loan amount decreases in an EMI option.
What are the key features of DhanLAP that MFDs/RIAs must know?
The key features/benefits of DhanLAP are:
- MFDs/RIAs can offer their clients an end-to-end digital solution that can help them meet their short to medium term requirement
- MFDs/RIAs can use LAMF for creating an emergency corpus for their clients, with the help of the ‘pay for what you use’ feature. Clients can access funds immediately in case of an emergency
- MFDs/RIAs can offer LAMF as an alternative to redemption by showing some obvious benefits like tax savings and exit loads
- Each MFD/RIA will get a dashboard where they can track their clients’ loans, progress on repayment, due dates and all other information regarding their loans. There are a number of reports available for the MFD/RIA which they can view and/or download
- All mutual fund schemes and banks are supported by the platform
What are the key risks associated with loans against mutual funds for MFDs/RIAs?
There is no risk for MFDs/RIAs. Through LAMF, MFDs give option of loan against mutual funds to their clients instead of redemption that can attract taxes and exit loads apart from denting wealth creation process.
The agreement for the loan is signed between an investor and the company, the lien marking is done on the name of the NBFC and the money is transferred to investor bank account directly. Also, repayment happens from the investor bank account to the NBFC bank account. Hence, there is no risk for an MFD.
How can an MFD/RIA offer DhanLAP services to his/her clients
We will integrate with MFDs/RIAs in two ways. One, we can integrate a customized link with MFDs/RIAs website or mobile app.
We are also open for a tighter integration with an API call to our website/app from MFDs/RIAs website/app. They will have to call our API in an encrypted manner with customer’s name, email, phone, PAN #, and MF folio information (optional). This will enable clients to have a seamless experience (single login) from the MFD/RIA website/app to our site/app.
There are marketing tools – emails, SMS, WhatsApp messages – created for the MFDs/RIAs so that they can send it to their clients. Also, with a single click, clients can avail loan and MFDs/RIAs can track progress of loan request.
How does an MFD/RIA benefit from this product?
LAMF can help MFDs/RIAs keep their assets and trail income intact. Also, it will help their clients create wealth over long term without any disruption.
On top of that, MFDs/RIAs also gets a trail fee for distribution of LAMF from DhanLAP. This will be an additional income for MFDs/RIAs.
Overall, this product is a win-win-win for the investor, MFD/RIA and AMC.
#DoNotRedeem #LienMark #MutualFunds
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