Would you advise taking a personal loan to invest in stocks and mutual funds?
Dhirendra Kumar highlights the consequences of taking a personal loan for investing in financial products
Sep 23, 2019
How wise will it be to take a personal loan to invest in mutual funds and stocks?
- Meera Ramesh
It's a very undesirable and dangerous thing. If you succeed, then you'll become a speculator. On the other hand, if you fail, then you'll be in misery. This is because you'll end up paying the interest, while your investment has also lost value.
So, either way, one should never borrow money to invest in equity because of unpredictability. Borrowing money to invest or borrowing money itself is like a taxi. The meter clocks every day and you are liable to pay that. So, even if you're borrowing at a modest rate, you basically are trying to make an arbitrage. That is, you are borrowing at 12 per cent and hoping that it will get you 15 per cent and that three per cent will be the return on the money that is not yours.
Assuming that this market goes down by another 10 per cent, you will lose your sleep. On the other hand, if it goes up by 20 per cent and you are able to make a handsome profit, you will end up becoming a speculator and one day you will lose all of it.