Thursday, March 7, 2019

Is It Good to Fund Your Investment with a Personal Loan?

With the rise of available loans and investment options in India, an increasing number of investors seem to opt for unsecured loans to invest in equity funds and Initial Public Offers to earn a profit and repay the loan. As the equity market stabilizes in the last fiscal quarters and the Sensex reaches an all-time high, people are capitalizing borrowed money to earn a substantial return against their investment.

There are certain things that an investor should look out for before they put borrowed money into investments. They should know about the best short term investments, along with the benchmark index to earn the maximum returns at the end of each year.

Is it right to fund your investment with a loan?

You can fund your investment options in India with a loan if you take care of a few things. For example, you should not put your money into an investment scheme that will mature after your credit is due. You should also consider whether the return on the investment is higher than the sum of credit. If the benchmark index (Nifty) shows returns of at least 13% annually, you will earn approximately 24% on your investment portfolio for the years ahead.

A personal loan is one of the best options if you want to invest the borrowed money. Personal loans come with various features and benefits that can assist you to earn the highest against your investment. Financial institutions offer flexible tenors on this type of unsecured loans, which puts less strain on your finances and eliminates any worries about losing an asset in case you fail to repay in time.

Things to look out for before investing

If you are looking for how to apply for a personal loan to invest the funds, you should check out a few precautions before you invest that money in the market. Let’s take a look.

  • Have an alternate source of income – Financial experts suggest borrowers to have an alternative source of income to pay the EMIs if they plan to invest the funds from such loans into investment options in India. Systematic withdrawal from the market to pay the EMI can prove detrimental if you want to earn a high return.
  • Carefully choosing the investment plans – Ideally, you should invest in the best investment plans for 3 years or 4 years. These often carry stock options that are fundamentally strong, and you also won’t have to pay for short-term capital gains.
  • Check the loan rates – The interest rates on a personal loan play a critical factor to determine you get a substantial return. If you choose an advance with a high rate of interest, you will have to hand over a significant amount of money to the lender when the payment gets due. You will also pay larger EMIs during the repayment tenor.
  • Opt for low interest rate personal loans - To earn the best returns without straining your finances during the loan tenor. You can use a personal loan EMI calculator to determine a preferred monthly installment rate for repayments.
  • Know about additional charges and fees – Along with the interest rates, you should also learn whether a lender asks for any fees and charges. Ideally, you should check it while you look for your personal loan eligibility criteria.

Various financial institutions charge a minimum processing fee and interest rate on personal loans.

  • Know about the investment option – Before you invest in a particular stock or mutual fund, know how it performed since it was introduced to the market. It will help you shortlist the best investment options in India and prevent you from losing money.
  • Understand the risk level – Certain investment schemes come with more risk but higher returns. You should opt for a scheme that you are comfortable with. For example, if you prefer a safer investment with guaranteed returns, you can put the money in fixed or recurring deposits or government debt bonds.

Investments via funds from a personal loan should be a careful and deliberate task with proper planning and strategies. While it is easy to meet a personal loan eligibility, you should consider the pros and cons of the credit along with the investment option itself to ensure a guaranteed gain.

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