When you need urgent money—whether it’s for education, medical expenses, business expansion, or a wedding—many people turn to personal loans. But did you know there’s a smarter way to borrow? It’s called a Loan Against Mutual Funds (LAMF).
Instead of selling your mutual fund investments, you can pledge them as collateral and get a loan from banks or NBFCs. This way, your investments remain intact, continue to grow, and you still get access to cash.
In this blog, we’ll cover everything you need to know about loans against mutual funds:
- What is a loan against mutual funds?
- How it works
- Eligibility & documents required
- Loan process explained
- Interest rates & charges
- Benefits of loan against mutual funds
- Risks & limitations
- Loan vs Redemption – which is better?
- Best banks/NBFCs offering this loan in India
- FAQs
By the end, you’ll know if LAMF is the right financial solution for you.
What Is a Loan Against Mutual Fund?
A Loan Against Mutual Fund (LAMF) is a type of secured loan where you pledge your mutual fund units to a lender (bank or NBFC) and borrow money against them.
- Your mutual fund investments act as collateral.
- You get a loan as a percentage of the fund value (usually 50%–80%).
- The units remain in your name but are “lien-marked” to the lender, meaning you can’t sell or redeem them until you repay the loan.
Example:
If you have mutual funds worth ₹10 lakh and the lender offers 70% loan-to-value (LTV), you can get a loan of up to ₹7 lakh without selling your investments.
How Does Loan Against Mutual Fund Work?
- Apply for the loan with a bank or NBFC that offers LAMF.
- Select mutual funds from your portfolio that you want to pledge.
- Lien marking – The lender marks a lien on your mutual fund units in the depository system (CAMS or KFintech).
- Loan disbursal – Once the lien is confirmed, the loan amount is transferred to your bank account.
- Repayment – You can repay through EMIs or flexible repayment, depending on the lender.
- Lien release – After full repayment, the lien is removed, and you regain full control of your mutual funds.
Eligibility Criteria
Most banks and NBFCs have simple eligibility conditions:
- Age: 18–75 years (varies by lender)
- Residency: Indian resident or NRI (some lenders allow NRIs)
- Investor type: Individuals, HUFs, and sometimes firms/companies
- Mutual fund type: Both equity and debt funds are eligible, but LTV differs
Documents Required
The documentation process is very simple and mostly paperless:
- KYC documents (Aadhaar, PAN, Voter ID, Passport, etc.)
- Address proof (Utility bill, Aadhaar, Passport, etc.)
- Bank details (for disbursal and repayment)
- Mutual fund account details (folio number)
Many banks like HDFC, ICICI, and Axis allow digital lien marking via CAMS/KFintech, making the entire process quick.
Loan Amount & LTV (Loan-to-Value Ratio)
The loan amount depends on the type of mutual fund:
- Equity Mutual Funds – 50% to 60% of fund value
- Debt Mutual Funds – 70% to 80% of fund value
Example:
- Equity MF value = ₹5 lakh → Loan = ₹2.5–3 lakh
- Debt MF value = ₹5 lakh → Loan = ₹3.5–4 lakh
This ensures lenders are protected against market volatility.
Interest Rates & Charges
Interest rates for loans against mutual funds are lower than personal loans because they are secured loans.
- Interest rate: 8% – 12% p.a. (varies by lender)
- Processing fee: 0.5% – 1% of loan amount
- Renewal charges: Annual fee (if it’s an overdraft facility)
- Prepayment charges: Usually NIL
💡 Pro Tip: Compare multiple banks/NBFCs to get the lowest interest rate.
Benefits of Loan Against Mutual Fund
- No need to sell investments – Your funds stay invested and continue to earn returns.
- Quick approval & disbursal – Mostly digital, takes 24–48 hours.
- Lower interest than personal loan/credit card – Since it’s secured.
- Flexible repayment – Pay interest only on the used amount (in case of overdraft).
- No credit score dependency – Even with a low CIBIL score, you may get approval since it’s secured.
- Retain ownership – You don’t lose your mutual funds; only a lien is created.
Risks & Limitations
- Market Risk – If fund value falls sharply, lender may ask you to add more security or reduce loan.
- Limited loan amount – Depends on mutual fund value; not suitable for very high cash needs unless you have large holdings.
- Lien restrictions – You cannot redeem pledged units until repayment.
- Equity funds give lower LTV – Only 50–60%, so borrowing capacity is less.
- Default risk – If you fail to repay, lender can sell your mutual fund units.
Loan vs Redemption: Which Is Better?
Let’s compare with an example.
Suppose you need ₹5 lakh urgently. You have mutual funds worth ₹8 lakh (equity).
- Option 1: Redeem Mutual Funds
- You sell units worth ₹5 lakh.
- Lose potential future returns.
- May incur capital gains tax.
- Option 2: Loan Against MF
- Pledge funds, get ₹4 lakh (50%–60%).
- Mutual funds continue growing.
- Pay interest ~10% p.a.
👉 If your need is short-term, LAMF is better because your investments remain intact.
👉 If your need is long-term, redemption might be better to avoid interest cost.
Best Banks & NBFCs Offering Loan Against Mutual Funds in India (2025)
- HDFC Bank – Instant loan via digital lien marking
- ICICI Bank – Overdraft facility against mutual funds
- Axis Bank – Competitive rates, flexible repayment
- SBI (State Bank of India) – Attractive interest rates
- Bajaj Finserv – Quick approval, high-value loans
- Kotak Mahindra Bank – End-to-end online processing
Steps to Apply for Loan Against Mutual Fund
- Check if your lender offers LAMF.
- Submit application online/offline.
- Complete KYC if not already done.
- Choose mutual funds to pledge.
- Lien marking done digitally via CAMS/KFintech.
- Loan amount disbursed within 24–48 hours.
FAQs on Loan Against Mutual Funds
1. Can I take a loan against SIP?
Yes, you can pledge mutual fund units purchased through SIP. But only the units already accumulated will count.
2. What happens if I don’t repay?
The lender can sell pledged mutual fund units to recover dues.
3. Are ELSS funds eligible?
No. ELSS (Tax-saving funds) have a 3-year lock-in, so they cannot be pledged.
4. Is CIBIL score required?
Not mandatory since it’s a secured loan, but a good credit score helps.
5. What’s better: Personal Loan or LAMF?
If you have mutual funds and need short-term money, LAMF is cheaper and better.
Final Thoughts
A Loan Against Mutual Fund is a smart financial option when you need urgent cash but don’t want to disturb your investments. It combines the best of both worlds: liquidity and continued wealth creation.
- Best for short-term needs like medical bills, education fees, or business working capital.
- Avoid for long-term needs if repayment may be difficult.
- Always compare interest rates across lenders before applying.
In 2025, with banks and NBFCs offering instant digital processing, taking a loan against mutual funds has become easier, faster, and more convenient than ever.
So, the next time you face a cash crunch, instead of breaking your investments, consider this smart borrowing option.
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