In an era where financial needs can arise at any moment, having access to quick and efficient credit solutions is essential. Traditionally, Gold Loans have been the go-to option for many Indians. So much so that today, Indian households have approximately 25,000 tons of gold with them. But the landscape is rapidly changing. With the advent of Loan Against Mutual Funds (LAMF), offered by Neoble and many more financial agencies, the way we look at secured loans is evolving. Let’s dive into the evolution of Gold Loans, explore their success, and understand why LAMF might be the superior choice for today’s discerning borrower.
Evolution of Gold Loans
Gold Loans have a rich history in India, dating back centuries. Gold has always been a symbol of wealth and security, especially in Indian households, making it a reliable asset for borrowing money. The formalization of Gold Loans began in the early 20th century, with banks and financial institutions recognizing gold as a secure and liquid asset. Over the years, the process of obtaining a Gold Loan has become more streamlined, with both traditional banks and Non-Banking Financial Companies (NBFCs) offering competitive rates and faster disbursements.
Reasons for the Success of Gold Loans
The success of Gold Loans as financial products can be attributed to several factors:
- Appreciating Asset: Between 2000 and 2023, Gold prices appreciated by 8.7% per annum, which compares well with the inflation of ~6% in the same period in a variety of economic, geopolitical and market conditions.
- Quick Access to Funds: With minimal documentation and quick processing, Gold Loans provide immediate liquidity, making them an ideal choice for urgent financial needs.
- Flexible Repayment Options: Gold loan repayment is easy in comparison to various loans. Borrowers can choose from various repayment options, including bullet payments, where interest is paid regularly, and the principal is repaid at the end of the tenure.
- High Loan-to-Value (LTV) Ratio: Typically, Gold Loans offer a high LTV ratio, often up to 75-80%, allowing borrowers to unlock significant value from their gold assets. This is due to the low volatility that gold has.
- Lower Interest Rates: Compared to unsecured loans like personal loans, Gold Loans generally come with lower interest rates, making them a cost-effective option.
- Widespread Accessibility: With thousands of branches across urban and rural India, Gold Loans are easily accessible to a large population.
How LAMF is Better than Gold Loans
While Gold Loans have their advantages, Loan Against Mutual Funds (LAMF) offered by Neoble is emerging as a superior alternative for several reasons. Some of the reasons are:
1. No Need to Part with Physical Assets: Unlike Gold Loans, which require borrowers to pledge their physical gold, LAMF allows you to leverage your mutual fund investments without parting with them from your asset portfolio. This means that your mutual fund portfolio will still be with you and just a lien will be created in the name of the financial institutions who had provided you the loan.
2. Higher Loan Amounts: The Indian market is growing at a staggering rate yearly. This is also helping your portfolio grow. With the rising value of mutual funds, particularly equity-oriented schemes, LAMF can often provide you a higher loan amount compared to the value of gold you might have on hand. Neoble offers up to 80% of your mutual fund’s Net Asset Value (NAV) as a loan, which can be significantly higher than what you might receive through a Gold Loan.
3. Competitive Interest Rates: The interest rate is the biggest element for anyone before selecting a loan. Neoble’s LAMF offers interest rates that are on par with those of Gold Loans. Moreover, the interest is charged only on the amount utilized from your investment, giving you the flexibility to manage your finances more efficiently.
4. Digital and Hassle-Free Process: Most LAMF is designed for the digital age. The entire process, from application to disbursement, can be completed online, eliminating the need for physical visits or paperwork. In contrast, Gold Loans still often require you to visit a branch and undergo manual evaluations to prove the quality of it.
5. No Risk of Theft or Loss: Banks and NBFCs are the safest places for parking your assets. With LAMF, your investments remain secure with the fund house, reducing the risk of storing physical gold, such as theft or loss. This added layer of security gives you peace of mind and let you have a sound sleep.
6. Growth Potential: In India, on average a mutual fund provides returns of 8% – 12% annually. You should not let go of this return due to cashing out your mutual fund holdings. With LAMF, even while your mutual funds are pledged, they continue to grow and earn dividends. This dual benefit of growth plus liquidity is unique to LAMF, making it an intelligent financial choice for your wealth creation.
| Comparison | Gold Loan | LAMF |
| Loan to Value (%) | 60% – 65% | Up to 90% |
| Interest Rate (%) | 9.50% onwards | 10.5% |
| Monthly Obligation | EMI | Interest Only |
| Principal Repayment | Every month | Postponed till the maturity date with an option to early pay |
| Risk of impurity | Yes | NO |
| Risk of theft | Yes | NO |
| Physical Presence | Yes | NO |
| Time to Process | 1 day or more | 8 minutes |
| Prepayment, Non-utilisation and Foreclosure Charges | Yes | NO |
Conclusion
In today’s fast-paced world where needs are coming instantly, financial flexibility is the key. This can be achieved only by proper knowledge regarding what should and shouldn’t be done. While Gold Loans have their place, Neoble’s Loan Against Mutual Funds (LAMF) offers a modern, efficient, and more secure alternative. With higher loan amounts, competitive interest rates, and the added advantage of not parting with physical assets, LAMF is not just another loan option—it’s a smarter way to unlock the value of your investments. So, why part with your investments when you can keep it safe and still meet your financial needs? Choose Neoble’s LAMF and experience the future of borrowing.
We are excited to introduce our Refer, Earn, Repeat offer! Take out a loan against your mutual funds at an attractive interest rate of just 10.5%. Plus, you’ll receive a flat cashback of ₹1,000 in Amazon vouchers with this offer!