How to Get Loan Against Mutual Funds: Step-by-Step Guide

Financial emergencies can arrive without warning, be it a medical expense, business requirement, education fee, or even a property down payment. Many people in such situations end up redeeming their mutual fund investments to raise money quickly. While this provides immediate liquidity, it disrupts long-term wealth creation and may result in losses if the market is down. This is where a loan against mutual funds (LAMF) comes in. Instead of selling your investments, you can pledge them and unlock funds within hours. You retain ownership of your portfolio, continue to earn dividends or capital appreciation, and repay the loan at your own pace. Unlike unsecured loans, where interest rates are high and eligibility is strict, LAMF is secured against your existing assets, making it more accessible and affordable.

Get quick liquidity without selling your portfolio. Apply for a loan against mutual funds today.

What is a loan against mutual funds (LAMF)?

A loan against mutual funds is a secured borrowing facility where the lender places a lien on the pledged mutual fund units as collateral to access funds. Instead of liquidating your holdings, they are marked in favour of the lender, and you are provided with a sanctioned credit limit.

For example, if you own equity mutual funds worth Rs. 10 lakh, you can typically get a loan of up to Rs. 9 lakh, depending on the loan-to-value (LTV) ratio allowed by the lender. Similarly, if you hold debt mutual funds, you may receive a higher LTV, sometimes up to 90% of the fund’s value.

The biggest advantage of LAMF is that you do not lose ownership of your investments. Even while pledged, your funds continue to earn returns, dividends, and appreciation. Once you repay the loan, the pledge is removed, and you regain full control of your portfolio.

How does a loan against mutual funds work?

The working mechanism of a loan against mutual funds is straightforward, especially with today’s digital processes. Here’s how it usually works:

1. Application: You apply online through the lender’s portal by providing your folio or demat account details.
2. Verification: The lender checks your mutual fund holdings through depositories such as NSDL/CDSL (for demat units) or via registrars like CAMS/KFintech (for physical folios).
3. Pledge creation: You authorise the pledge electronically. Once approved, your mutual fund units are locked with the depository.
4. Sanctioned limit: The lender calculates a loan limit based on the NAV and the type of mutual funds pledged.
5. Fund withdrawal: You can withdraw money from this limit as needed. Many lenders offer an overdraft-like facility, which gives flexibility.
6. Interest payment: Interest is charged only on the amount you actually withdraw, not the entire sanctioned limit.
7. Repayment and release: Once you repay the loan or close the limit, the pledged units are released back to you.

This structure ensures you have constant liquidity on hand while still benefiting from your ongoing investments.

Features and benefits of loan against mutual funds

A loan against mutual funds comes with several features that make it more attractive than other forms of borrowing. Let us explore them in detail:

• Quick processing: The entire loan approval process is online and can be completed in just a few hours.
• No redemption required: Unlike selling your funds, pledging ensures you stay invested and continue to build wealth.
• Lower interest rates: Since the loan is secured, rates are often much lower than unsecured loans such as personal loans or credit cards.
• Flexible withdrawals: With the loan facility, you can withdraw and repay funds multiple times as per your needs.
• High LTV ratios: Debt funds often allow up to 90% of their value as a loan, while equity funds allow up to 50%.
• No restriction on usage: You can use the money for any purpose, business expansion, education, medical expenses, or personal needs.
• Interest on usage only: Interest is charged only on the drawn amount, not the total loan limit.
• Prepayment penalty: There are no pre-payment charges up to Rs. 5 crores. You can repay anytime without additional charges.

Stay invested while accessing liquidity. Check the benefits of a loan against mutual funds here.

Wondering how to get a loan against mutual funds? The process is simple if you follow these steps:

• Step 1: Online application – Visit the lender’s official website or app and submit a loan request.
• Step 2: Provide mutual fund details – Enter your folio number, PAN, and other required details.
• Step 3: Authorise pledge creation – Approve the pledge request via depositories like NSDL/CDSL or registrars like CAMS/KFintech.
• Step 4: Loan approval – The lender verifies your holdings and sets your credit limit based on NAV and fund type.
• Step 5: Withdraw funds – You can draw money from the sanctioned limit as and when required.

The entire process is digital, paperless, and usually takes less than 24 hours. This makes it a practical solution for emergencies where speed and convenience are crucial.

Eligibility and documents required for loan against mutual funds

Before applying, you should know whether you meet the eligibility criteria.

Eligibility criteria

• You must be an Indian resident above 21 years of age.
• Mutual funds should be in your name (joint holders may also be allowed).
• Both equity and debt mutual funds are generally accepted.
• The funds should be from approved schemes listed by the lender.

Required documents

• KYC documents – PAN, any one of the officially Valid Documents:  Aadhaar,  passport, Driving License, Voter ID, NREGA Job Card, Letter issued by National Population Register.
• Mutual fund details – Folio number or demat account details.
• Bank account details – For loan disbursement and repayments.

Most lenders leverage KYC records linked with your mutual fund account, so additional paperwork is minimal.

Minimal paperwork and instant approval. Check if you are eligible today

Loan against mutual funds details and charges

Every loan comes with certain costs, and a loan against mutual funds is no exception. It’s important to be aware of them before applying:

• Interest rate: Typically lower than personal loans, ranging from 8% to 15% annually, depending on the lender.
• Processing fee: A nominal one-time fee, often up to 4.72% of the sanctioned amount.
• Pledge charges: Depositories may charge a small fee for creating and releasing the pledge.
• Other charges: Some lenders may have renewal or annual maintenance fees, though many waive them.

These charges are relatively small compared to the financial flexibility you gain. Still, it’s wise to review the cost structure in advance.

Which mutual funds are eligible? (Debt vs equity)

Not all mutual funds can be pledged for loans. Eligibility depends on the lender’s approved list and risk assessment.

By pledging a mix of debt and equity funds, you can balance risk and optimise your loan amount.

Things you should know about loan against mutual funds

Before opting for LAMF, keep these important points in mind:

• Ownership retention: You remain the investor while the funds are pledged.
• Market impact: If the NAV drops significantly, you may face a margin call to restore balance.
• Flexible repayment: Most lenders allow you to repay in parts or fully at any time.
• Continuous earnings: Dividends, bonuses, and capital appreciation continue while units are pledged.
• Partial release: Repaying part of the loan can unlock corresponding units.
• Digital convenience: Most lenders offer a mobile app or online platform to track and manage your loan.
• No end-use restriction: You can use the funds for business, education, medical, or personal needs.

Manage urgent needs smartly without redeeming funds. Apply for a loan against mutual funds

Conclusion

A loan against mutual funds is an effective way to meet financial requirements without disturbing your long-term investment goals. It offers quick approval, flexible usage, and the comfort of continued ownership of your portfolio. Whether you are managing medical expenses, business needs, or personal commitments, this loan type provides a balance between liquidity and investment continuity. By understanding how to get a loan against mutual funds, the eligibility, charges, and risks involved, you can make a confident borrowing decision.

Unlock the power of your investments today. Get a loan against mutual funds now