How You Can Use Personal Loan For Investment - Unity Bank
5 min read | 3 months ago
Online loans are the new favorite funding choice for Indian consumers. People love personal loans since application processing takes only a few minutes, while borrowers can flexibly leverage their funds for various purposes. These include investing in various financial instruments to secure your future. A report by IndiQube and Scripbox highlighted how Indians were transitioning to active investing from merely saving in 2022. 30% started investing to build an emergency corpus while 27% each cited investment goals like retirement planning and the education of children.
Are you planning to start your investment journey anytime soon? While getting an instant personal loan is increasingly possible across websites and mobile apps, you should have a clear picture of how to use these funds for strategic investments.
Here is a guide that will help immensely.
Assess Investment Opportunities and Risks
There are several investment opportunities that you can choose from today. Some of them include the following:
- Gold- With gold going digital, it is an opportune time to deploy smaller amounts in digital gold stocks. There are no storage hassles and limits on the investment amount.
- Risk Factors- Gold prices may fluctuate in value. You should master selling and buying to cut your losses.
- Mutual Funds- Mutual funds are usually long-term investments. They pool funds from investors, and professional fund managers handle them. They invest in equity and debt funds with bonds, money market instruments, and other securities.
- Risk Factors- Market fluctuations may erode investment value. You may have to hold onto your investment for longer to balance out risks.
- Stock Market Investments- You may consider using online loans to directly invest in buying stocks of various companies.
- Risk Factors- Market volatility and ups and downs in stock prices. Exposure to the highest risks based on external events.
- Peer-to-Peer Lending- Some investors often deploy money into peer-to-peer lending platforms. They can thus lend funds to other businesses and people and earn interest income.
Risk Factors- Not choosing a reputed platform, issues with borrower credibility, payment defaults.
Diversify Portfolio and Consider Tax Implications
One of the principles behind successful investing is diversification. Aim at spreading your investments throughout multiple categories or instruments to lower risks. Remember that almost every investment is subject to market risks.
Hence, consult a financial advisor and chalk out an investment strategy that helps you meet your short and long-term objectives. You can diversify your portfolio by investing in stocks of reputed companies and mutual funds. At the same time, lower your risks by considering peer-to-peer lending platforms, gold, and even real estate, if possible. It will help you hedge your finances against inflation.
On that note, here are the tax implications of some investment options:
| Investment Channel | Taxation |
|---|---|
| Mutual Funds |
Long-term capital gains (LTCG) tax of 10% for gains exceeding INR 1 lakh on equity funds Short-term capital gains (STCG) tax of 15% on sale of equity fund units LTCG/STCG on debt funds taxed as per income tax slab |
| Digital Gold |
No direct taxes if held for less than 36 months Long-term capital gains tax of 20% with 4% surcharge and cess |
| Taxes on income from peer-to-peer lending |
Taxed under the head income from other sources Taxes payable as per the applicable slab |
Tips For Maximizing Returns and Managing Repayments
If you want to scale up your investment returns and manage your loan repayments smoothly, here are a few tips worth considering.
- Have a contingency plan in place for repaying your EMIs. What if there is market volatility in the short term or a loss? This should not equate to missing out on your loan repayments. Hence, keep the EMI amount for at least three to six months in hand for these situations.
- Diversify your investments to spread out your risks and ensure better returns.
- Compare your loan interest rate with the minimum return that you are expecting from your investments.
- Ensure that the loan repayment schedule syncs with your investment timeline and expected returns.
- Invest only with the guidance of a professional in the industry.
- Have a clear understanding of the risks linked to these investment options.
- Do not borrow amounts exceeding what you require to start your preferred investments.
Conclusion
Adopt a balanced approach when using online loans for investment purposes. It can be a smart strategy on paper, although you should always have an idea about the risks and potential downsides. It will help you chalk out a plan where your ability to repay the loan is not affected. You can consider opting for quick and hassle-free digital personal loans from Unity Small Finance Bank in this regard.
FAQs
1.What are some popular investment options with personal loans?
Some of the best investment choices with personal loans include stocks, mutual funds, gold, and peer-to-peer lending. There are several options, each with their own benefits and risks.
2. How long should I stay invested in equity mutual funds?
Equities have the highest risks among all other instruments in the market. When you invest in these funds, it is best to stay invested for a longer duration. It will help balance temporary market volatility and fluctuations while ensuring a higher scope of earning better returns.
About Unity Small Finance Bank
Unity Small Finance Bank is committed to making banking simpler and more accessible for everyone. Our services include Savings Account, NRI account, Current Account, Fixed Deposits, and Personal Loans offering flexible tenures and attractive interest rates. We also offer financing options like MSME Loans and Microfinance to support businesses and underserved communities. Learn more about Unity Small Finance Bank here.
