Business Loan

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.

12 Nov,2022 10:11 IST 115
Should You Take Personal Loan For Investing In Stock and Mutual Funds?

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 Funds

Every 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.
Zaroorat aapki. Personal Loan Humara
Apply Now

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 Finance

While 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.

FAQs:

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.

Zaroorat aapki. Personal Loan Humara
Apply Now

Disclaimer: The information contained in this post is for general information purposes only. IIFL Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Gold/ Personal/ Business) loan product specifications and information that maybe stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Gold/ Personal/ Business) loan.

Most Read

Check the Difference Between 24k and 22k Gold
18 Jun,2024 09:26 IST
72183 Views
Like 8331 8331 Likes
Franking and Stamping: What’s the difference?
14 Aug,2017 03:45 IST
48157 Views
Like 9648 9648 Likes
Why Gold Is Cheaper In Kerala?
12 Jul,2024 09:35 IST
1859 Views
Like 6296 1802 Likes
Udyam Registration Certificate & Its Benefits
27 May,2024 09:12 IST
32981 Views
Like 241 241 Likes

Get Business Loan

By clicking on Apply Now button on the page, you authorize IIFL & its representatives to inform you about various products, offers and services provided by IIFL through any mode including telephone calls, SMS, letters, whatsapp etc.You confirm that laws in relation to unsolicited communication referred in 'National Do Not Call Registry' as laid down by 'Telecom Regulatory Authority of India' will not be applicable for such information/communication.
I accept the Terms and Conditions