Loan Against Mutual Funds Explained: How it Works and Benefits

This facility can support planned or unexpected financial requirements without requiring immediate portfolio liquidation. Its principal benefits include:

• Investment continuity: Pledged units remain invested and continue participating in market movements during the loan tenure.
• No compulsory redemption: Borrowers retain ownership and avoid selling investments solely to manage a temporary cash requirement.
• Interest on utilisation: Interest is charged only on the amount withdrawn from the sanctioned credit limit.
• Digital processing: Application, portfolio assessment, lien authorisation, and account management can generally be completed online.
• Flexible tenure: Repayment options are available from seven days to 36 months, depending on the selected arrangement.
• Broad scheme coverage: More than 5,000 approved funds across over 40 asset management companies may qualify.

• Potential additional credit: An increase in pledged portfolio value may improve drawing power, subject to the sanctioned limit and reassessment.

  
  

These benefits are most relevant when the requirement is temporary and the borrower has a reliable repayment plan.

Bajaj Finance evaluates the applicant and pledged portfolio before determining the final credit limit. The general requirements are presented below:

Eligibility does not guarantee approval. The final decision depends on fund type, current NAV, unit quantity, ownership structure, existing obligations, and internal policies.

Basic requirements

Applicants must provide accurate personal information, hold eligible mutual fund units, and maintain valid KYC records. An applicant above 70 years may require a co-borrower under applicable lending conditions.

Accepted mutual funds

Approved equity, debt, hybrid, liquid, and other eligible schemes may be accepted. The applicable LTV varies because different fund categories carry different volatility and liquidity characteristics.

The final credit limit can reach up to 90% of the portfolio value, depending on the fund type. Equity-oriented schemes generally receive a lower LTV than comparatively stable debt-oriented schemes.

Documentation required

The application generally requires three essential documents or records:

• PAN card
• Aadhaar card, passport, or voter ID for KYC verification

• Consolidated Account Statement showing the mutual fund holdings

  
  

The lender may request additional information if ownership, KYC, bank, or portfolio details require further verification.

The loan application process is digital and uses OTP-based verification. Applicants can follow these steps:

1. Visit the loan against mutual funds page and select the application option.
2. Enter your registered mobile number and verify it using the received OTP.
3. Provide your PAN, date of birth, email address, and requested personal information.
4. Enter or retrieve your mutual fund details and review the eligible schemes.
5. Select the mutual fund units that you want to offer as collateral.
6. Review the proposed credit limit calculated using current NAV and applicable LTV.
7. Accept the terms and digitally authorise lien marking on the selected units.

8. Complete bank verification and submit the application for final processing.

   
   

Following successful verification and pledge confirmation, disbursal may take approximately 24 to 48 working hours. Actual timelines depend on documentation, registrar confirmation, and operational checks.

Borrowers should calculate the complete borrowing cost rather than comparing only headline interest rates. Current charges include:

Interest is generally calculated on the amount actually withdrawn. Therefore, using only the required amount can control interest accumulation under a revolving credit arrangement.

Pledging mutual funds provides liquidity, but it also creates repayment and collateral-related responsibilities. Important risks include:

• Market-linked valuation: A decline in NAV reduces the market value of the collateral and may affect drawing power.
• Margin shortfall: The lender may request additional units or partial repayment when the prescribed collateral margin is breached.
• Restricted transactions: Lien-marked units cannot be redeemed, switched, transferred, or pledged elsewhere during the facility.
• Interest accumulation: Keeping the withdrawn amount outstanding for longer increases the total borrowing cost.
• Possible liquidation: Continued default or an unresolved shortfall may allow the lender to sell pledged units and recover dues.
• Investment losses: Remaining invested preserves market participation, but it also exposes the portfolio to possible depreciation.

• Scheme limitations: Funds outside the lender’s approved list cannot support the credit limit, regardless of overall portfolio value.

  
  

Regularly monitoring NAV, drawing power, outstanding principal, accrued interest, and margin alerts can help borrowers manage these risks responsibly.

Read more: things to know before taking loan against mutual funds

A loan against mutual funds can provide short-term liquidity while allowing eligible investments to remain market-linked. Its value lies in lien-based borrowing, interest on the utilised amount, flexible tenure, and digital account management. However, the facility introduces interest costs, repayment obligations, NAV-related margin risks, and possible liquidation after default. Compare these considerations with redemption costs and borrow only when a dependable repayment source is available.