How does a loan against mutual funds work?

Learn how a loan against mutual funds works, including eligibility, LTV ratio, repayment tenure, and online application process.
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3 mins
10-June-2025

When you are in need of quick funds be it for an emergency, a large purchase, or business requirements selling your mutual funds might seem like the only option. But what if you could access liquidity without letting go of your investments?

That is where a loan against mutual funds comes in. By pledging your mutual fund units as collateral, you can raise a secured loan and still stay invested. It is like borrowing against your future returns while keeping your long-term wealth goals intact.

Need emergency funds but do not want to break your investments? Get a loan against mutual funds

What is the working procedure for a loan against mutual funds?

A loan against mutual funds works on a simple premise you pledge your mutual fund units as security, and the lender disburses funds based on their current market value. These units remain locked (lien-marked) until you repay the loan. You can continue to earn dividends and NAV appreciation during the loan period, but you won’t be able to redeem or sell the pledged units. Once you repay the loan fully, the lien is removed, and your units are released back to you.

If there is a repayment default, the lender has the right to liquidate the pledged units to recover the dues.

Loan Against Shares
Loan Against Mutual Funds

What are the advantages of availing loan against mutual funds?

Opting for a loan against mutual funds brings along a host of benefits. Here is why it’s gaining popularity:

  • Lower interest rates
    Because it’s a secured loan, the interest rates are much lower than personal or business loans.

  • Quick access to funds
    The application process is fast, mostly online, and requires minimal documentation. You can get funds almost instantly.

  • No need to sell your mutual funds
    Your investments remain intact. You still benefit from potential returns and do not lose ownership.

  • Pay interest only on what you use
    You only pay interest on the amount you actually withdraw, not the total sanctioned limit.

  • Ideal for short-term needs
    Whether it's an emergency or a short-term requirement, LAMF is a low-stress way to raise capital.

Why redeem when you can borrow? Apply now for a loan against mutual funds and stay invested for future growth.

What is the eligibility criteria for a loan against mutual funds?

Getting started is simple. You are eligible for a loan against mutual funds if:

  • You are an Indian citizen.

  • You are salaried or self-employed.

  • You pledge mutual funds worth at least Rs. 50,000.

  • You fall within the prescribed age bracket.

These criteria may vary based on the lender’s discretion, so always double-check the terms before applying.

Own mutual funds worth Rs. 50,000 or more?
You may be eligible for a loan against securities. Click to apply

How can I use loan against mutual funds?

A loan against mutual funds is incredibly versatile. Here are some real-world ways to use it:

  1. Emergency expenses
    Medical bills, urgent travel, or unforeseen repairs can be handled without breaking your investments.

  2. Education
    Fund tuition, certifications, or children’s academic needs without dipping into long-term savings.

  3. Business needs
    Manage cash flow, invest in growth, or fund operational expenses easily.

  4. Home renovation
    Upgrade your home interiors or fix that leaky ceiling without compromising investments.

  5. Wedding expenses
    Manage big-ticket ceremonies and functions without disturbing your financial planning.

  6. Travel
    Finance that long-pending international trip, guilt-free.

  7. Large purchases
    Buy appliances, furniture, or make a vehicle down payment using your mutual fund’s value.

Turn your portfolio into a financial safety net
Apply for a secured loan against mutual funds and cover expenses without stress.

What are the documents required to avail loan against mutual funds?

Here’s what you will typically need to apply:

  • KYC documents (Aadhaar, passport, or voter ID)

  • PAN card

  • Consolidated Account Statement (CAS) of your mutual fund holdings

  • Any other loan/security documents specified by the lender

These documents help verify identity and investment value before loan disbursement.

How to apply for a loan against mutual funds?

Applying for a loan against mutual funds is easier than ever:

  1. Choose a lender that offers LAMF services.

  2. Fill out the application either online or in-branch.

  3. Upload required documents including your KYC and MF statements.

  4. The lender will mark a lien on your mutual fund units.

  5. Post verification, the loan will be approved and disbursed to your account.

You can then use the funds as you wish with complete flexibility.

Interest rates and charges of loans against mutual funds

Because these are secured loans, interest rates are lower than unsecured loans like personal or credit card loans. But here are some potential charges to be aware of:

  • Processing fee – Usually a small percentage of the loan amount.

  • Lien marking fee – For initiating the lien on your mutual fund units.

  • Prepayment charges – Some lenders may charge if you repay early.

  • Renewal fee – If you wish to extend your loan tenure.

Interest rates can vary depending on the type and value of mutual funds you pledge, so it’s best to compare options.

What are the factors you should consider before investing in a loan against mutual funds (LAMF)?

Before you take the plunge, keep these factors in mind:

  • Loan-to-value (LTV): This determines how much loan you can get compared to your investment value.

  • Interest rate: Always compare across lenders to get the best deal.

  • Eligibility of funds: Not all mutual funds are accepted—check with your lender.

  • Repayment flexibility: Look at tenure, EMI structure, and part-prepayment options.

  • Market fluctuation risk: A drop in NAV could affect your loan eligibility or trigger a margin call.

Conclusion

A loan against mutual funds is one of the most efficient and smart financing tools out there. It helps you stay invested while getting instant access to funds at lower interest rates. Whether you are dealing with a cash crunch, planning a big event, or exploring a short-term opportunity this secured loan can step in without disrupting your long-term goals.

So the next time you are short on funds, ask yourself this:

Why redeem when you can borrow and stay invested?

Do not let emergencies derail your investments. Apply now for a loan against mutual funds and enjoy liquidity without compromise.

Frequently asked questions

What is the tenure of the loan against mutual funds?

The tenure for a loan against mutual funds is flexible, ranging from as short as 7 days to up to 36 months. This allows borrowers to choose a repayment period that best suits their financial situation and needs.

How much loan can I get against the mutual fund?

Wondering how much you can borrow against your mutual fund investments? You can get a loan of up to 90% of your fund’s value, giving you access to substantial liquidity without selling your holdings. Some lenders, like Bajaj Finance, offer loan amounts as high as Rs.5 crore, ensuring you have the financial flexibility you need.

Enjoy flexible tenures on a Loan Against Mutual Funds. Apply now

Will I receive dividends if I take a loan against mutual funds (LAMF)?

Yes, you will continue to receive dividends from your mutual funds even after pledging them for a loan. However, your lender holds the units as collateral, and you cannot redeem or sell them until the loan is repaid.

How to repay a loan against mutual funds?

You can repay the loan through EMIs, lump sum payments, or by closing the loan before tenure. Once fully repaid, the pledged mutual fund units are released, allowing you to regain full control over your investments.

Is a loan against a mutual fund good?

Yes, it’s a smart option if you need liquidity without redeeming your investments. The interest rates are typically lower than unsecured loans, and you continue to earn returns on your pledged mutual fund units.

What is the maximum loan against mutual funds?

You can typically avail up to 90% of the Net Asset Value (NAV) for equity mutual funds and up to 80% for debt mutual funds, depending on the lender’s policy and the type of mutual fund.

Is it good to take a loan against a mutual fund?

Yes, especially during emergencies. You get quick access to funds at lower rates than personal loans or credit cards, and your investment portfolio remains intact allowing it to potentially grow even while it's pledged.

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