Should you take loan against MFs?

People currently are living on debt or say borrowed money and this has become a lifestyle. So, when it comes to expense, they prefer to post-pay by taking credit or loan rather than immediate pay. Loan against MFs is one of the ways in which you can get a loan. Now, what is the reason behind such a lifestyle change? The only immediate reason behind such a drastic change is the ease of access. In this new digital age, where almost all things are going digital, the access to money in form of credit is pretty easy. As easy as just a single click.
 
Due to this change and increase in demand for loan products, banks came up with a loan against mutual funds. Wherein, as per RBI’s (Reserve Bank of India’s) guidelines, one can avail loans up to 50 per cent of NAV (Net Asset Value) of the fund in case of equity funds and 80 per cent of NAV of the fund in case of debt funds. If we look at the interest rates then it is around 10 per cent to 11 per cent.
 
As far as ownership is concerned you need to sign a lien for availing the loan. So, what does lien mean? Lien is a document which gives the right to the bank to sell the funds or to hold it. Once you take a loan against MFs you cannot redeem or sell those funds against which you may have taken the loan until you clear off your loan against it.
 
So, now the question is whether to go with it or just ignore it? This would depend on which phase the markets are in. If the markets are in bull phase then it makes sense to redeem the units as required rather than taking a loan and if the markets are in the bear phase then you may pledge the mutual funds and take a loan if you require one. So, it's not that you should completely ignore this facility but it would be wise to use them only in the case of emergency.