The Benefits of Lien Marking for Creditors

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Lien is the power granted to the lender in exchange for a security to recover money in case the credit given to the borrower has not been returned in accordance with agreed terms

We take out loans when our cashflows are constrained. The loan against securities is a much less expensive source of funds compared to personal loans. A rate of interest of 14 percent or more is due on most personal loans while loans against securities charge 10-13 percent. Mutual funds can be used as collateral for soliciting money. Loan lenders can create a lien over the mutual fund units used as collateral. Here is how it works.

What is lien?

Lien refers to the right granted an unsecured security loan to the lending institution, to obtain the amount owed in the event that the credit provided to the borrower cannot be paid back in accordance with the terms agreed to. When a loan is granted against mutual funds the lien is recorded in the name of the loaner on units that are offered as security.

How is lien marked?

The lien form includes names of unitholder(s) as well as the folio’s number and the number units for which the lien has been tagged. The lien request form must be signed by the unitholders who own the folio. All joint owners must sign. The form should be accompanied by a signed letter from the lender, clearly stating the information of the lender, as well as bank account details.

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

The form to mark lien is on the web site for mutual funds as well as transfer agents and registrars (RTAs). The time for completion and submitting the form is two to three days. The lender is informed of the lien that has been marked, and it is communicated to the investor through the statement of account.

Lien is also possible to mark using an online system. “For the online mark of lien investors visit the finance portal of the financier and provides consent to take out a loan against mutual fund units. Then the financier submits the lien marking request to the said number of units in the investor’s folio. After the marking of the lien, the lender is required to share the loan amount with the buyer,” claims Kamala Radhakrishnan Senior Vice President, Business Development and Marketing, Computer Age Management Services.

Although the procedure offered by RTAs is accessible through the apps or websites of selected lenders, it’s quick and secure. “Every step requires an OTP-based authorization from the Investor that makes it a secure system,” says Sreekanth Nadella the CEO of Kfintech. “After selecting to borrow for mutual fund unit using any one of our digital platforms operated by our partners, investors will be able to complete the entire transaction in 5-10 minutes,” He adds.

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RTAs have formed tie-ups with a select group of banks for the purpose of enabling this process of online marking of lien. If the lender you’re dealing with is not an affiliation with RTA the lender has to go through the physical process.

How does lien work?

The lien gives the right that the borrower can liquidate the parts of the mutual funds that are so designated if the borrower fail to pay back loans. The lender is able to invoke the lien via a written letter sent to the house for all units or for certain parts of the units. If the borrower makes a repayment of the loan, then the lien can be revoked by the lender through a letter to the fund house.

If the units have been placed under lien, the investor is unable to switch or redeem the units. The principal investments will continue to receive dividends in the form of dividends or otherwise as suggested by mutual funds. Dividends are paid to the investors, when the units are held on lien. The units received by way of dividend reinvestment or dividends or sub-division (split) or division of units, or any other method will remain subject to lien. If there is a death that of the owner, these units that are under lien are not transferable to the nominee or heirs of the legal heir following the process of due process. The rights of the lender are superior and the lender gets the loans that are outstanding first.

Lien Amount: What is it as well as the reasons for its removal. Lien Mark

Banking is extensive, and every associated task has a definite term to make it distinct from other existing ones. Knowing every banking term is somehow difficult, however at the same time, you can try to have trustworthy information regarding the essential terms. Have you ever been in a situation where you found your bank account lien Amount marked? Did you know what it means or chose to ignore it, as you weren’t familiar with it?

The minute-to-minute number that is affixed to your bank account can significantly affect the transactions you make. You may have to pay a penalty for similar reasons. Therefore, instead of ignoring the signs, be aware of certain facts about bank terms.

We are here to make the process easier for you by breaking down the lien amount and how to approach this matter. This guide will also outline the steps for removing the amount of the lien from different bank accounts as well as the steps to find the lien amount.

Which is the amount of Lien?

A Lien amount refers to the locked or frozen amount in your account , but not available for a particular duration. Usually, the bank authorities make it impossible for this amount to be used. It remains in your account, however neither can you withdraw the amount nor transfer it to another account. The lien amount will be held until bank authorities decide to eliminate any lock on your account. There isn’t a limit specified for the amount locked, as the bank authorities have the right to block the entire balance in your bank account and turn it into a lien.

How do I define Lien Quantity or Lien Marked Meaning?

The second thing to consider when familiar with the lien mount is what the”liability mark” on a bank account means. A bank account bearing the word “liability” means that the borrower has allowed the lender to use it as a result of the recovery of money associated with the mutual fund. Typically, banks will mark an account lien when a borrower is not able to pay the loan in accordance with the agreed-upon conditions. To recover the loan that was sanctioned to mutual funds, the banks place an inscription on the lien that specifies the unit of fund utilized by the lender to fund the security.

Also check: Estimation Of A Construction Project

Kevin Peter