Should You Take Personal Loan For Investing In Stock and Mutual Funds?
Two of the most widely invested instruments are stocks & mutual funds. Read on to know whether you should take personal loans for stocks & mutual funds at IIFL Finance.
India is witnessing record volumes of investments in the stock market, where more individuals are opening a Demat account with stockbrokers to invest in various equity-linked instruments. However, with viral stories of how investors made huge profits in the stock market, new investors believe they must have a high investment amount to make good profits in the stock market. Based on this idea, they consider investing in a personal loan to invest in stock market instruments such as stocks and mutual funds. But is it a good idea?This blog will help you understand stock market investments and whether you should take personal loans for stocks and mutual funds.
What Are Stock Market Investments?The Indian stock market is a regulated marketplace that includes numerous investment instruments such as stocks, mutual funds, bonds, currencies etc. Such investments provide a way for investors to make profits based on the price difference between the instrument’s cost and the selling price.
Two of the most widely invested instruments are stocks and mutual funds. The former allows investors to own a percentage of the company by becoming shareholders, whereas the latter pools investors' money to invest in various companies' stocks for diversification and profits. However, as both investment instruments require investors to invest money, taking a personal loan and investing in mutual funds or stocks has become a standard solution.
The Idea Of Taking A Personal Loan To Invest In Stocks and Mutual FundsEvery investment, be it in stocks or mutual funds, requires the investors to put up capital. The idea behind making massive profits in the stock market is that the higher the invested amount, the higher the profit potential. However, employed or self-employed retail investors generally have little capital for investing in stocks and mutual funds but want to make high profits. Without funds, they look towards raising external funds by taking a personal loan for stocks or mutual funds.
The idea behind capital raising through a personal loan is based on its features, which allow borrowers to use the loan amount for any personal legal purposes. Hence, investors believe they can raise a loan amount of up to Rs 5 lakh through a personal loan and invest it in stocks and mutual funds. They believe that through their profits in stocks and mutual funds, they can repay the loan to the lender and still have profits after paying the interest amount.While taking a personal loan for investment seems theoretically ideal, experts believe an investor should never do it.
Should You Take Personal Loan For Investing In Stock and Mutual Funds?The stock market is rife with numerous terminologies for investors, and one such term is speculators. These investors are actual traders who try to predict the future price of equities based on various factors and monitor their prices regularly.
If these speculators think that some stocks’ prices will rise, they buy the stock or invest in a mutual fund that contains such stocks. However, such predictions are always based on assumptions and can prove false, forcing you to incur heavy losses in the stock market. Here is why you should never take a personal loan to buy stocks and mutual funds.
• Volatility:The stock market is highly volatile, and the price of the stocks changes in real time. You may believe that taking a personal loan to invest in such stocks can help you earn profits over and above the repayment amount but to assume how much profit you can make is next to impossible.
Based on the volatility, you may make profits lower than the amount you will have to repay to the lender for the personal loan for investing in stocks. Furthermore, if you incur losses, you will have to repay the entire loan amount from your savings.
• Negative News:Many factors influence stocks, such as the company’s financials and other external negative news. You may take a personal loan to invest in the stock market based on your assumption that the stock price will rise but can incur huge losses if there is any negative news related to the company. In such an instance, the share price may fall sharply, forcing you to lose your principal amount and repay the loan from your pooled savings.
Hence, experts advise that you should never take a personal loan to buy stocks and mutual funds as the market is volatile, and you may incur huge losses if the prices of the stocks go down. In such a case, you may default on the personal loan repayment, which can hurt your chances of availing of a loan in the future.
Avail Of An Ideal Personal Loan From IIFL FinanceWhile taking a personal loan to invest in stocks and mutual funds is not ideal, you can take a personal loan to cover other expenses to save money to invest. The personal loan offers instant funds up to Rs 5 lakh with a quick disbursal process. You can apply for the loan online or offline by visiting IIFL Finance nearest branch and verifying your KYC details.
Q.1: Do I need collateral to qualify for a personal loan from IIFL Finance?
Ans: No, you do not need to pledge any asset as collateral to take a loan from IIFL Finance.
Q.2: What is the loan tenure for IIFL Finance personal loan?
Ans: When taking a personal loan from IIFL Finance, you can choose from a loan tenure between 3 - 42 months.
Q.3: What is the minimum monthly salary to get approval for a personal loan from IIFL Finance?
Ans: The monthly salary or income of the applicant must start from Rs 22,000. However, this may vary depending on the city of residence.