Lien refers to the right granted to the lender over a security to recover money in the event that the credit granted to the borrower isn’t returned in accordance with agreed terms

We go for loans when our cashflows are limited. Loan against securities is a relatively cheaper source of funds compared to personal loans. The interest rate is 14 percent or higher is due on most personal loans while loans against securities charge 10 to 13 percent. Units of mutual funds can be used as collateral for seeking to raise funds. They can also create a lien for these mutual funds. used as collateral. Here’s how it works.

What is Lien?

Lien refers to the right given to the creditor over the security to recover any money if the credit given to the borrower fails to be repayable in the manner agreed to. For loans against mutual funds, the lien is marked by the lender on the units that are offered as security.

How is lien marked?

The lien form must include information about the unitholder(s) the folio’s number, and the number units for which the lien is dated. The form for requesting a lien must be signed by all unitholders on the folio. Joint holders must sign. The form needs to be accompanied by a letter from the creditor clearly detailing the details of the lender, as well as bank account information.

The lien is placed on the units , does not depend on their value. The value of units marked under lien could fluctuate.

The form to mark lien is on the website of mutual funds and registrar and transfer agents (RTAs). The turnaround time after filling and submission of the form is between approximately two to three working days. The lender is informed of the lien as it is marked and this information is disclosed to the investor in the statement of account.

Lien may also be marked online. “For online marking of lien an investor must visit the website of the financier and gives consent to credit against mutual fund units and the financier digitally sends the lien marking request against the specified number of units that are in the investor’s folio. Following the marking of the lien the lender will then part the loan amount to the investor,” states Kamala Radhakrishnan Senior Vice President, Business Development & Marketing, Computer Age Management Services.

Although the procedure offered by RTAs can be found via the sites or applications of certain lenders, it’s fast and secure. “Every step involves an OTP-based authentication by the Investor that makes it a secure process,” says Sreekanth Nadella CEO of Kfintech. “After making a decision to apply for a loan against mutual fund units in any of the digital platforms provided by our partners, the investor can complete the entire journey within 5–10 minutes” the CEO adds.

RTAs have entered into tie-ups with select banks for the online registration of a lien. If the lender you are working with doesn’t have an agreement with RTA, then you have to undergo the physical procedure.

How does lien work?

The lien confers the right that the borrower can liquidate the units of mutual funds which are marked with the lien if the borrower fails to service loans. The lender can invoke the lien via a written letter sent to the house to all of the units or certain parts of the units. If the borrower pays back the loan, then the lien is revoked by the lender by writing to the fund house.

When the units are marked under lien, investors cannot swap or redeem those units. The investments that are underlying be paid out in the form of dividends or otherwise in accordance with the proposals of mutual funds. Dividends are paid to the investors when the units are held under lien. Units that are received in the form of dividend reinvestment, dividends or sub-division (split) of units or through any other method would remain in lien. In the event of the death or incapacity of an investor, units held under lien cannot be passed on to the nominee or legal heir following the due process. It is the right of the lender to make sure that the interests prevail and the lender gets the loan balance first.

Lien Amount: What is it and Reasons for 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 all banking terms is impossible, but at the same time, it is possible to endeavor to have reliable information about the crucial terms. Have you ever come off an instance where you noticed the amount of your bank’s lien marked? Did you understand what it means or chose to ignore it, as you were not familiar with it?

The minute-to-minute number in your bank account may alter the transactions you make. Or maybe you have to pay a fine for similar transactions. So, rather than ignoring these signs, take the time to learn about bank terms.

We are here to make the process easier for you by breaking down the amount of the lien and the excellent way to approach this matter. This guide also includes the methods to remove the lien amount from different bank accounts , as well as how to find the amount that is owed to you.

How much is Lien?

A Lien amount refers to the locked or frozen amount available in your account , but not accessible for a certain period of time. The majority of the time, bank authorities make it impossible for this amount to be used. It remains in your account but it will not be able to be withdrawn from the money or transfer it to another account. The lien amount will remain frozen until bank decides to release the lock from your account. There is no specific limit on the amount that can be locked since bank officials have complete power to block the entire balance in your bank account and transform it into a loan amount.

What’s the meaning of Lien Amount or Lien Marked Meaning?

The next thing you should know after becoming familiar with the lien mount is what the”liquid mark” on the bank account indicates. A bank account bearing the lien mark indicates that the borrower has granted the lender to take action as a result of the recovery of money associated with the mutual fund. Typically, bank officials identify an account lien whenever the borrower does not pay the amount as per agreed conditions. To recover the loan that was sanctioned to mutual funds, the banks create the lien symbol with the fund units used by the lender for the security.

Also check: Estimation Of A Construction Project