Lien refers to the right granted to the lender in exchange for an asset to recover funds in case the credit given to the borrower isn’t returned in accordance with agreed terms
We take out loans when our cash flow is limited. A loan against securities is a cheaper source of funds compared to personal loans. The interest rate is 14 percent or more is owed on most personal loans while loans against securities charge 10-13 percent. Mutual funds may serve as collateral in seeking to raise funds. They can also create a lien for the mutual fund units that are offered as collateral. This is how it is done.
What is lien?
Lien is the right given by the bank over security, to seek any money if the credit provided to the borrower fails to be repaid as per the terms agreed to. When a loan is granted against mutual funds it is noted as a loan by the lending institution on unit offered as security.
How is lien marked?
The form for lien contains information about the unitholder(s), folio number, and the number units to which the lien is dated. The lien request form has to be signed by the unitholders on the folio. All joint holders have to sign. The form must be accompanied with a letter from the creditor stating the information of the lender as well as bank account details.
The lien is engraved on the units , in no way on the sum. The value of the units under lien can keep fluctuating.
The format to mark lien is available on the site of the mutual fund as well as registrar and transfer agents (RTAs). The time between filling in and the form can be about two to three days. The financier is informed of the lien as it is marked and also communicated to the investor through the account statement.
Lien can also be marked in an online manner. “For the online mark of the lien it is necessary for the investor to visit the web site of the financier, and provides consent to borrow against mutual fund units and the financier digitally sends the lien marking request to the specified number of units that are in the investor’s folio. Following the marking of the lien, the lender will part with the loan amount with the buyer,” says Kamala Radhakrishnan, Senior Vice President-Business Development & Marketing, Computer Age Management Services.
Although the procedure offered by RTAs is accessible on the sites or applications of selected lenders, it’s fast and secure. “Every step requires an OTP-based security authentication from the Investor, which makes it a secure service,” says Sreekanth Nadella CEO of Kfintech. “After opting for loan for mutual fund unit in any one of our digital platforms operated by our partners, investors can complete the entire transaction in 5–10 minutes” Nadella adds.
RTAs have joined with select banks to facilitate this process of online marking of lien. If the bank you are working with doesn’t have an arrangement with RTA and you need to go through the physical process.
How does lien work?
The lien confers the right for the loaner to sell the parts of the mutual funds that are so designated if the borrower cannot pay their loans. The lender can invoke the lien via a written letter sent to the house on behalf of each unit or for part of it. If the borrower is able to repay the loan, the lien is cancelled by the lender who writes to the fund house.
When units are classified as a lien, the buyer cannot swap or redeem those units. The underlying investments continue to receive dividends in the form of dividends or any other, as proposed by mutual funds. Dividends are paid directly to investors when the units are held in lien. The units that are redeemed by way of dividend reinvestment, the bonus, subdivision (split) of units or by any other method would remain in lien. In the event of the death of the investor, the units that are under lien are not transferable to the nominee or heirs of the legal heir following the proper process. It is the right of the lender to make sure that the interests prevail and the lender gets the outstanding loans first.
Lien Amount: Meaning The Lien Amount, the Reasons for It, and Removal of Lien Mark
Banking is vast and every associated task has specific terms to make it distinct from the other ones. Becoming familiar with every bank term is difficult, however at the same time, you could attempt to have accurate information on the most important terms. Did you ever find yourself in a situation where you found your bank account lien Amount written on it? Did you understand the significance of it, or if you chose to ignore it, as you were unfamiliar with it?
Well, a minute-to-minute pointer in your account at the bank could impact the transactions you make. Or maybe you have to pay some penalty for the same. Instead of just ignoring these signs, attempt to understand certain details regarding banking terms.
We’re here to make it simpler for you by breaking down the amount of the lien and how to deal with this issue. This guide also outlines the methods to remove the amount of the lien from different bank accounts , as well as how to verify the amount of the lien.
How much is Lien?
A Lien amount is the locked or frozen balance on your account which is not accessible for a certain duration. Most banks restrict this amount from being utilized. The money remains in your account, however it is not possible to take it out or transfer it to a different account. The lien amount is frozen until bank decides to eliminate any lock on your account. There is no specified limit for the locked amount, since the bank’s authorities have full authority to limit the entire bank balance and convert the amount into a lien.
What’s the meaning of Lien The Amount, or Lien Marked Meaning?
The next thing to learn when familiar with that lien mounting is the meaning of the”liability marking” on the bank account indicates. A bank account bearing the lien mark indicates that the borrower has granted the lender to make this decision according to the process of recovery of the funds associated with the fund. Typically, bank authorities mark an account lien when the borrower is unable to repay the loan amount in accordance with agreed-upon terms. To recover the loan that was sanctioned to mutual funds, the banks place a lien mark specifying the units of funds used by the lender for the security.
Also check: Estimation Of A Construction Project