What is the process of lien marking?
The process of lien marking on mutual funds, shares, or bonds as collateral for securing a loan involves several key players, including the borrower, the lender (typically a bank or financial institution), and the Registrar and Transfer Agent (RTA) of the mutual fund or the depository participant (DP) in case of shares or bonds.
Let's elaborate on this process using mutual funds as an example and referencing RTAs like CAMS (Computer Age Management Services) and KFintech (formerly Karvy Fintech), which are among India's leading RTAs.
Today, all the lien marking processes with revoke, invoke, and marker-checker systems are done digitally with Finsire’s API with RTA, lender and user consent.
Step 1: Agreement and request
The borrower (investor) and the lender agree that the mutual funds should be marked as a lien against the loan. The borrower then submits a request to the lender for lien marking, providing details of the mutual funds.
Step 2: Lender initiates lien marking
After receiving the borrower's consent and the mutual fund details, the lender initiates the lien marking process. This is done by digitally sending a lien marking request via an API to the RTA managing the specific mutual fund units, such as CAMS or KFintech, depending on which RTA services the mutual fund house.
Step 3: RTA processes the lien marking
Upon receiving the lien marking request from the lender, the RTA verifies the holdings' details and the request's authenticity. Once verified, the RTA marks a lien on the specified number of units in the mutual fund against the borrower's folio. The RTA then sends a confirmation of the lien marking to both the lender and the borrower.
Step 4: Lien status update
The mutual fund units over which the lien is marked are still held in the borrower's name, but the lien status is updated in the records maintained by the RTA. While the lien is in place, the borrower cannot redeem, transfer, or pledge these units.
Step 5: Loan repayment and lien release
Once the borrower repays the loan according to the terms agreed upon with the lender, the lender requests the RTA release the lien on the mutual fund units. After receiving and verifying the lien release request, the RTA removes the lien and updates the folio status accordingly. The lender and borrower receive confirmation of the lien release.
Step 6: Units free for transactions
Post lien release, the mutual fund units are free from any encumbrance, and the investor (borrower) can transact (redeem, transfer, etc.) the units at their discretion.
This process ensures that mutual fund units can be used as collateral for loans while maintaining a clear and legal framework for lien marking and release, safeguarded by the procedures followed by RTAs like CAMS and KFintech in India.
With Finsire, the process of lien marking can be managed through Finsire’s web portal for the lender and APIs.
Request OTP to fetch the list of Mutual Funds
Validate OTP to fetch the list of Mutual Funds
Request lien on selected Mutual Funds
Request OTP > Validate OTP > Select units > Pledge units
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