REITs Vs Real Estate Funds

SEBI is introducing a new financial product in the market called REITs (Real Estate Investment Trusts). What are REITs? How are they different from the plethora of real estate funds out in the market which have raised vast amounts of money from Indian HNIs? What are the key benefits of REITs? For what kind of investors do REITs offer interesting solutions? Read on as we try to get you answers to all of these questions.
What are REITs?

REITs – Real Estate Investment Trusts – have been in the news lately ever since SEBI issued guidelines for REITs to come in to existence within the regulatory framework. Investors, both wholesale and retail, now will have another avenue to invest in the real estate sector through a regulated fund route.

REITs will help investors channelise their investments into India’s realty sector through a regulated mechanism. As the investment in REITs is asset-backed, it is helpful for investors to invest in real estate without the hassle of going through the checks on property titles and the plethora of regulatory formalities.

The web definition of REITs says, "REITs is an investment trust that owns and manages a pool of commercial properties and mortgages and other real estate assets; shares can be bought and sold in the stock market."

Investopedia defines REITs as a security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs typically offer investors high yields, as well as a highly liquid method of investing in real estate."

Types of REITS

There are internationally three types of REITS. In India however, a beginning is made with the third type, the hybrid one.

Equity REITs: Equity REITs invest in and own properties (thus responsible for the equity or value of their real estate assets). Their revenues come principally from their properties’ rents.

Mortgage REITs: Mortgage REITs deal in investment and ownership of property mortgages. These REITs loan money for mortgages to owners of real estate, or purchase existing mortgages or mortgage-backed securities. Their revenues are generated primarily by the interest that they earn on the mortgage loans.

Hybrid REITs: Hybrid REITs combine the investment strategies of equity REITs and mortgage REITs by investing in both properties and mortgages. REITS in India will be predominantly of the Hybrid type.

Individuals can invest in REITs by purchasing their shares directly on an open exchange. An additional benefit to investing in REITs is the fact that many are accompanied by dividend reinvestment plans (DRIPs). These are equivalent to Growth plans in Equity and other mutual Funds. Besides, REITs invest in shopping malls, office buildings, apartments, warehouses and hotels. There are specific segment or location wise investments too. Some REITs will invest specifically in one area of real estate – shopping malls, for example – or in one specific region, state or country. Investing in REITs is a liquid, dividend-paying means of participating in the real estate market.

I – REITs or REITs in India

On October 10, 2013, SEBI announced the draft consultation paper on Real Estate Investment Trust (REIT) Regulations, 2013. However, earlier in 2008, SEBI had issued certain draft regulations for introducing REITs. I-REITs (REITs in India) would issue securities, which would be listed on stock exchanges and REITs will invest in completed rent generating properties in India (to comprise minimum 90% of net asset value) and mortgage backed securities. Initially I-REITs are planned to be available only to high net worth individuals and institutions to develop the market. Gradually, the doors will be opened to retail investors.

The earlier attempts to introduce REITs in India did not succeed, mainly due to global slowdown and resultant impact on the property markets in India. Also, the proposed REITs then were not permitted to invest in mortgage backed securities, which resulted in to shrinkage of real estate market opportunities.

Structure of I-REITS

Where will REITs invest?

The guidelines from SEBI are clear as regards to where REITS will invest. SEBI has mandated that at least 90% of the value of the REIT assets shall be in completed revenue generating properties. In order to provide flexibility, it has been allowed to invest the remaining 10% in other assets as specified in the proposed regulations, e.g. developmental properties, listed or unlisted debt of companies, mortgage backed securities, equity shares of companies deriving not less than 75% revenue from real estate activities, government securities, money market or cash.

What are the benefits and risks of REITs?

REITs will offer investors another option or avenue to include real estate in their investment portfolio. Further, well managed REITs may offer higher dividend yields which may be higher compared to other investments. As we know, rental yields on long term commercial office space and retail space tend to be much higher than rental yields on residential property, higher than dividend yields on stocks and are often in the range of returns that bank deposits offer. An investor in a REIT can thus look forward to reasonably high annual dividends as well as some appreciation in the long term from appreciation in the capital value of the properties owned by the REIT.

There are several risks in non-traded REITs including illiquidity and non-transparency – which is perhaps why SEBI has not permitted non-traded REITs to be introduced in India.

REITs in the World

In the United States REITs were created when President Dwight D. Eisenhower signed into law the REIT Act title contained in the Cigar Excise Tax Extension of 1960. The objectives of creating REITs were similar that is to give all types of investors the opportunity to invest in large-scale, diversified portfolios of income-producing real estate in the same way they normally invest in other types of assets, through the purchase and sale of liquid securities.

Since then, several (more than 20) countries around the globe have established REIT regimes, with more countries following in to the footsteps. The spread of the REIT approach to real estate investment around the world has also increased awareness and acceptance of investing in global real estate securities which has given more and more options to investors.

A comprehensive index for the REIT and global listed property market is the FTSE EPRA/NAREIT Global Real Estate Index Series, which was created jointly in October 2001 by the index provider FTSE Group, the National Association of Real Estate Investment Trusts (NAREIT) and the European Public Real Estate Association (EPRA).

In Singapore, commonly referred to as S-REITs, there are 26 REITs listed on the Singapore Exchange, with the latest REIT, Soil build Business Space REIT, listed on 16 August 2013. The first one to be set up being Capita Mall Trust in July 2002. They represent a range of property sectors including retail, office, industrial, hospitality and residential. S-REITs hold in addition to local properties, a variety of properties in countries including Japan, China, Indonesia and Hong Kong.

Other Real Estate Investment Funds

It is now a well known fact that in the last decade not only in India, but worldwide, there has been tremendous expansion in real estate, both in terms of residential properties as well as commercial real estate. The trend continues, despite the global slowdown, though with the similar expansion rate. The considerable funds which are entering the real estate market have opened investment opportunities for all and sundry giving further boost to this sector. The result has been that a slew of real estate funds have been promoted by both foreign and Indian financial institutions which are now competing to invest in the higher return real estate segment. Several financial services organisations – including HDFC, Birla Sun Life, Kotak, ICICI Prudential, ASK, Piramal Group, Milestone etc have raised funds from Indian HNIs for their real estate funds. These are not REITs, but are either funds introduced through the PMS route or the Venture Capital route or the PE route. Many of these structures came into existence before the AIF (Alternate Investment Fund) guidelines were implemented by SEBI.

How are REITs different from other real estate funds?

Investors always have the option of buying houses and commercial property directly, without going through the fund route. This continues to be the preferred mode of investing in this sector. However, benefits of diversification are not available. Paperwork is cumbersome and risks associated with title etc are borne by the buyer. Ticker sizes of investments are soaring with ever increasing real estate prices.

Most of the existing set of real estate funds in India focus on capital appreciation as the desired outcome rather than high annual yields as the desired objective. With this in mind, they typically enter into residential or commercial properties at an early stage of development – effectively becoming financiers to builders and get either their returns from an upside on the final sale of the finished properties or a high coupon from the builder or most often, a combination of both. These deals typically are in the nature of a minimum guaranteed return plus some upside, if any, on successful sale of the property. These are typically structured as PE funds are : which means a 6-7 year investment period, with investment amounts being collected in tranches over the first 3 years, and exits being effected in years 4-7. There is little or no liquidity available in the intervening period. Investors cannot normally expect annual dividends, as the objective is to get an upside by partnering with a builder / developer.

One way of looking at the difference between a REIT and a real estate PE / PMS fund is that it is somewhat akin to the difference between a dividend yield equity fund and a closed ended mid and small cap fund. This is not technically a precise comparison, but perhaps useful in getting the context of the difference between the two.

Another important difference is access. Existing funds through the AIF route and PMS route have a minimum investment threshold of Rs. 25 lakhs – which make them clearly HNI oriented products, with limited liquidity. On the other hand, REITs will be available for investments from Rs. 2 lakhs and upwards. Many more investors who cannot otherwise think of capitalising on high commercial space rental yields, can now do so through a professionally managed REIT.

REITs are packaged with the benefits of listing, regular and stable source of income for investors, diversification of assets, small initial investment requirement (initially SEBI has proposed a minimum investment of Rs.2,00,000), professionally managed, no project execution risk (as fully completed properties are to be included in the portfolio -90% of net asset value). However, non payment of rent risk and market price volatility risk remains.

As with all market related investments options, there are always certain risks to be factored into. Some investments have more some less. REITS falls in to the low risk and moderate return type of investment. As REITs get launched and market participants see them delivering results, they could become a very useful asset class for investors wanting stable income with some capital appreciation prospects in the long run. Over time, advisors may start looking at adding REITs as retirement income solutions.

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SBI Focused Equity Fund

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SBI Focused Equity Fund

How has the SBI Focused Equity Fund performed?
With a 10-year return of 17.82%, the fund has outperformed both the index (12.43%) and the category average (14.31%) by a good margin.
fr1 The fund has comfortably beaten the multi-cap category over the past decade.

SBI Focused Equity Fund performance (%)
fr2The fund has outperformed across time periods.

Yearly performance (%)
fr3
The fund has mostly delivered healthy outperformance in recent years.

Where does the SBI Focused Equity Fund invest?
fr4
The fund has hiked presence in large-caps in recent years.

Top 5 sectors in portfolio (%)
fr5The fund is significantly overweight in auto, engineering and metals.

SBI Focused Equity Fund Top 5 stocks in portfolio (%)
fr6
The fund takes outsized positions in its top bets.

How risky is it? fr7Should you buy SBI Focused Equity Fund?
This fund has been rechristened as a focused fund, but even in its earlier avatar as SBI Emerging Businesses, it maintained a concentrated portfolio. While the fund remains market-cap neutral, it has hiked its presence in large-caps in recent times. But it retains its mid- and small-cap tilt, where its exposure remains higher relative to many peers. The degree of concentration is also comparatively higher with the fund taking outsized positions in high-conviction bets and several small positions at the tail-end of the portfolio.

It has favoured financials with nearly 40% exposure to this segment. Its performance has been consistent in recent years, delivering healthy alpha relative to peers, making it a worthy bet for those seeking an aggressive, focused strategy.

SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich – Best ELSS Funds

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PPF vs ELSS Tax Saving Mutual Funds

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The Public Provident Fund (PPF) and equity-linked saving schemes (ELSS) are popular investment options that both qualify for income tax deductions. A deduction reduces your overall tax liability. Contributions up to Rs 1.5 lakh a year qualify for tax deduction under Section 80C. Financial planners say that when it comes to investments in the PPF and ELSS mutual funds, investors should look at these investments not just from a tax-saving perspective but one that will help achieve their financial goals. ELSS mutual funds invest in equity shares of companies across sectors and market capitalization and have a three-year lock-in.

An ELSS mutual fund is quite the same as a diversified equity fund, other than tax deduction benefits and the three-year lock-in. ELSS investments come with a lock-in period of three years, which is lowest among Section 80C investments. Investors should understand ELSS mutual funds are equity market-linked products.

1) The PPF is a 15-year government-backed savings option offered through banks and post offices. Thereafter, it can extended further in batches of five years.

2) The interest rate on the PPF is revised every quarter and is benchmarked to yields on government securities. Currently, the PPF fetches an interest rate of 7.6%.

3) In the PPF, you can maximise your returns by investing early in the financial year so that your deposits can earn interest for the entire year.

4) The minimum amount that must be deposited in a PPF account in a financial year is Rs 500 and the maximum allowed is Rs 1.5 lakh.

5) From the seventh year, you can make partial withdrawals from your PPF account. Apart from income tax benefits, the PPF is suitable for conservative investors who are looking at long-term financial goals like a child’s education or retirement, say financial planners. The interest and maturity proceeds are exempted from tax.

6) Premature closure of a PPF account is allowed only under specific conditions such as expenditure towards medical treatment. For this, a PPF account must have completed at least five financial years.

7) ELSS or tax-saving mutual schemes have a three-year lock-in period. You can partially or fully redeem your ELSS or tax saving mutual fund investments after three years.

8) Financial planners suggest investors to opt for systematic investment plans (SIPs) in tax saving mutual funds to help spread their spread their investments throughout the year.

9) The lock-in of three years also applies to SIPs. In other words, every SIP instalment in a ELSS fund is subject to a three-year lock-in.

10) Long term capital gains from equity mutual funds, including ELSS funds, above Rs 1 lakh will be taxed at 10%. ELSS funds come with both growth and dividend options. Mutual fund houses have to pay a dividend distribution tax or DDT of 10% on dividends declared under equity schemes, including ELSS funds. This effectively reduces the return from dividends from equity funds.

SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich – Best ELSS Funds

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Aditya Birla Sun Life Pure Value Fund

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High valuations of well-placed companies call for investments in mutual fund schemes which follow the principle of value investing. After all, the valuations of companies with high revenue visibility for the next two to three years cannot be stretched beyond a point. In such a scenario, it makes sense to look at companies which are attractive not only with respect to their intrinsic value but also on return ratios over a long period of operational history.

Typically, in the long term — especially three years — schemes which focus on value investing tend to perform fairly well. They beat their peers (sometimes even large-cap focused schemes). Among such schemes, Aditya Birla Pure Value fund is one of the best performing value schemes. What works for the scheme is its investments across market capitalisation, which works in the long-term as value is size-agnostic. This helps in creating a diversified portfolio of well placed companies that look attractive not only in terms of valuations but also from the point of view visibility of revenues. In the past three- and five-year periods, the scheme has delivered 16% and 30% returns, respectively, while its peers in the same category have given returns in the range of 15% and 23% in the same periods.

In the past six months, the Aditya Birla Sun Life Pure Value Fund scheme’s fund managers Mahesh Patil and Milind Bafna have constructed a portfolio which have either consistently gained market share or have dominant market in their respective sectors. Also they have selected companies which operate in sectors where demand is improving meaningfully. A few prominent companies of the scheme’s portfolio are Bajaj Auto, ITC, and Dabur India. Investors considering investments in this scheme must strictly keep a long-term view of at least five years.

SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich – Best ELSS Funds

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What are FMPs?

What are FMPs?

As Fixed maturity plans or FMPs are closed-end debt mutual fund schemes, they come with a specific tenure. So investors can invest only at the time of a new fund offering (NFO). Similarly, you cannot withdraw before maturity, but you can sell such schemes on the stock exchange. The corpus of FMPs is invested in fixed-income securities that mature just before the scheme itself. For example, if the FMP is for three years, the fund manager will invest in instruments with a maturity of three years or less. This helps FMPs to protect against interest rate risk.

In the current interest rate regime, FMPs offer a good investment opportunity as investors can lock in their money at attractive yield

SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich – Best ELSS Funds

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FMCG Funds

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The consistent performance of FMCG mutual fund schemes over various time-frames have revived an old debate: Should regular investors opt for them? FMCG fund category has been consistently performing in one-, three-, five- and 10-year time periods. A recent report by Crisil said that the FMCG sector is likely to report 11-12 per cent rise in revenues in fiscal 2019, up 300-400 basis points from 8 per cent in fiscal 2018.

However, despite its consistent performance, most mutual fund advisors are not in favour of retail investors betting big on the sector. “FMCG funds are consistent but they are essentially sector schemes and fundamentally retail investors shouldn’t have more than 10 per cent in their portfolio,

The FMCG sector has great prospects with rural consumption growing in India but investors need not bet on specific funds. FMCG sector is going to remain strong in India but the funds are meant to be a topping in your portfolio. During the low phase, they will give you consistent returns but in a bull run, you will miss the rally

The FMCG fund category has returned 21.78 per cent in the last one year, 16.73 per cent in three years, 16.61 per cent in five years and 19.46 per cent in the 10 year time frame. The Nifty FMCG Index has returned 12.83 per cent in the last one year, 12.16 per cent in three years and 10.57 per cent in five years. There are only two schemes investing in the FMCG sector in India: SBI Consumption Opportunities Fund (Erstwhile SBI FMCG Fund) and ICICI Prudential FMCG Fund. Both these schemes have been consistent performers in the long term.

Fast-moving consumer goods (FMCG) falls under the defensive sector category like pharma. Products that people use in their everyday lives come under FMCG sector. Coca-cola, ITC, HUL are some examples of FMCG companies. The FMCG sector is an important contributor to India’s GDP growth, with a whopping size of around Rs 500 billion.

Mutual fund advisors believe that FMCG is a strong story in the coming time but why bet on specific sector funds when your fund manager can do that for you. “For small investors, adding more schemes doesn’t make sense. If you are investing in a diversified fund, your fund manager is already adding the best sectors to your scheme portfolio. In a diversified fund your fund manager can change the allocation if a certain sector goes down. You don’t have that freedom in the sector scheme

However, you may opt for FMCG if you have deep pockets, say mutual fund advisors. If you have a huge corpus and you have already invested across market caps to meet you goals, you can add an FMCG scheme for consistent returns over years, they say. But if you are a small investor, you should opt for a diversified fund. Those who are betting on these schemes for diversification should get in with a horizon of minimum five years

SIPs are Best Investments when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich – Best ELSS Funds

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SIPs Can mke you Rich

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Over the last three to five years, an additional development in the actual mode of paying for the SIP investment has improved matters further. Earlier, SIPs meant writing a pile of cheques and giving them to the fund. Obviously, there was a limit to this, generally anything from 12 to 36 months. As a result, investors felt that an SIP was a fixed tenure plan. When the cheques would run out, investors would take their time to go through the whole effort again. At that point, if the markets were looking depressed, they would not do it at all.

Now, investors generally give an ECS mandate for the monthly SIP investment amount to be directly transferred from their bank accounts. Generally, this is a perpetual mandate. Stopping the SIP requires an instruction to be registered. Earlier, stopping was automatic but continuing involved a fresh pile of cheques to be written. In my experience with investors, I have felt that this change of defaults has had a huge impact.

The kind of returns that one can get with SIPs are truly mind-boggling. Here are a few very long-term examples. I took up four funds that have been around for decades and calculated what would have happened if I had done a modest SIP for the last 20 years

It turns out that just a small investment of Rs 5,000 a month over two decades left me with sums of Rs 1.29 crore, Rs 1.85 crore, Rs 1.21 crore, and Rs 2.05 crore for the four funds. The amount invested in each case was just Rs 12 lakh (Rs 5,000 a month for 20 years). An investment like this can change the life of a middle class person. However, there’s no special complexity in doing this. Just something straightforward, done over a long period.

SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich – Best ELSS Funds

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Why Bond Yields Increase?

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The Reserve Bank of India (RBI) had said foreign portfolio investors could buy up to 1 percentage point more in government bonds, but in two stages, in 2018-19. The rise in the limit was less than what the market expected which had upset bond markets and yields shot up. While yields were firming up, the indicative calendar for state development loans came as a shock to the bond market. The calendar showed states would be borrowing Rs 1.15-1.28 trillion in the first quarter, way higher than the usual borrowing plan of Rs 700 billion. Oversupply of bonds had pulled down demand for bonds and prices fell. Needless to say, yields moved up.

Oil prices reached a fresh three-year high. Since the last few months, oil prices have been inching up. India, imports about 80 per cent of the oil it uses. Rise in oil prices push fiscal deficits and therefore government needs to raise funds from the market by way of issuing more bonds which will curtail demand for the existing bonds. In anticipation of this bond prices have declined and yield moved up.

SIPs are Best Investments when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich – Best ELSS Funds

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Impact of rising interest rates on Equity Mutual Fund Investors

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Rising interest rates in all eventuality can apply the brakes on a rising stock market. Of late, returns from market indices, especially mid- and small-cap indices have dwindled. "Interest rates act like gravity on valuations; higher the interest rates in a country, lower are the equity valuations. It is an inverse correlation

Reasons such as rise in oil prices, faltering health of public sector banks, increasing inflation among others may lead to the equity market finding new lows in the near future. The offset is that corporate earnings have been robust this quarter (top and bottom lines) for a substantial portion of the market. The question is what level will crude become an impediment to earnings, and we think we are already at levels that will result in a dampening of consumer willingness to spend.

That has repercussions for equities and continued rise in crude is likely to impact markets negatively

What to do: These macro economic factors should not deter a long term investor in equities and equity mutual funds. We would point out though, that the macro conditions can change quickly, so investors need to work within an asset allocation framework and stick to a plan that takes advantages of moves in the market, rather than letting these moves shake them out of a long term investment plan

After the recent reclassification of mutual funds, tracking the performance by investors may become easier. Going forward, investors will benefit by focusing on their fund’s relative performance against its benchmark as well as the peer group during different timeframes

SIPs are Best Investments when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich – Best ELSS Funds

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Now can get Loan against Mutual Fund

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HDFC Bank today launched its Digital Loans against Mutual Funds (LAMF) in partnership with transfer agent CAMS. The bank customers can now pledge mutual fund assets online and get overdraft limit in under 3 minutes. They can also avail of this product through the HDFC Bank website in three easy steps, said the bank in a press release.

With this product, customers can leverage their mutual fund (MFs) portfolio to avail funds for any contingencies or emergencies without liquidating their investments or stopping their regular investment plans/SIPs. The facility is available for resident Indians and for portfolios that are individual holdings.

The Bank has collaborated with CAMS to create a seamless customer experience. It is open to all HDFC Bank customers holding assets in at least one of the ten mutual fund houses registered with the CAMS. These ten fund houses together constitute about 60% of the total assets under management of the industry. These fund houses are Aditya Birla Sun Life Mutual Fund, DSP Blackrock Mutual Fund, HDFC Mutual Fund, HSBC Mutual Fund, ICICI Prudential Mutual Fund, IDFC Mutual Fund, Kotak Mahindra Mutual Fund, L&T Mutual Fund, SBI Mutual Fund and Tata Mutual Fund.

Both equity and debt schemes are eligible for loans.

Currently, a customer has to wait for 5-6 days to avail a loan against mutual funds. Even redemption of MFs takes couple of days for the funds to be transferred to the customers’ account. “With this facility , customers can design their own loan against mutual fund, choosing which assets from their portfolio they would like to pledge, calculate their overdraft limit eligibility against mutual fund, open a current account online instantly and get the money into the account; all in a matter of minutes,” said the bank.

Key benefits of Digital LAMF:

• Instant availability of money in account within minutes.

• Available against both Debt & Equity Mutual Funds

• Customer retains mutual fund portfolio without liquidation

• First-time borrowers without credit history can access loans

• Interest applied only on amount utilised

• New Loans and enhancements can be done online

SIPs are Best Investments when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich – Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

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