Loan Against Mutual Funds explained

Understand how a loan against mutual funds works, its features, benefits, eligibility, and application process. Get instant liquidity without redeeming your investments. Learn more with Bajaj Finserv.
Loan Against Mutual Funds
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3 minutes
17-June-2025

A loan against mutual funds allows investors to borrow money by pledging their mutual fund holdings as collateral. Instead of selling the mutual fund units to access funds, investors can keep their investments intact while availing of the loan. The lender places a lien on the mutual fund units, which prevents the borrower from redeeming or selling them until the loan is fully repaid.

The loan amount is typically determined based on the loan-to-value (LTV) ratio set by the lender. The LTV ratio represents the percentage of the mutual fund's net asset value (NAV) that the lender is willing to lend. LTV ratios usually range from 50% to 80%, depending on the lender's policies and the type of mutual funds being used as collateral.

Borrowers can use the loan amount for various purposes, such as:

  • Meeting urgent financial needs
  • Funding a large purchase
  • Managing temporary cash flow shortages
  • Taking advantage of investment opportunities, and more

Interest rates for loans against mutual funds are generally lower than unsecured loans like personal loans because mutual funds serve as collateral, reducing the lender's risk. However, borrowers must be aware of the potential risks involved. It includes any impact on the growth of their investments and the risk of default leading to the liquidation of their pledged units.

To apply for a loan against mutual funds, borrowers need to meet certain eligibility criteria set by the lender. The mutual funds being pledged should be eligible for loan purposes according to the lender's guidelines, and borrowers must provide relevant documents and complete the loan application process.

Taking a loan against mutual funds can be an effective financial tool for those in need of immediate funds while preserving their investment portfolio's long-term growth potential. However, borrowers should carefully evaluate the terms and conditions, interest rates, repayment schedule, and potential risks associated with the loan before proceeding. Consulting with a financial adviser can help borrowers make an informed decision that aligns with their financial goals and circumstances.

Disclaimer

While care is taken to update the information, products, and services included in or available on our application, website and related platforms, there may be inadvertent inaccuracies or typographical errors or delays in updating the information. The material contained in this site, and on associated web pages, is for reference and general information purpose and the details mentioned in the respective product/service document shall prevail in case of any inconsistency. Subscribers and users should seek professional advice before acting on the basis of the information contained herein. Please take an informed decision with respect to any product or service after going through the relevant product/service document and applicable terms and conditions.

*Terms and conditions apply

Frequently asked questions

What is a loan against mutual funds?

A loan against mutual funds allows you to borrow money by pledging your mutual fund units as collateral, without selling them. You continue to hold ownership and can access funds quickly, based on your portfolio value.

Who can apply for a loan against mutual funds?

Any individual investor who owns mutual fund units held in demat or non-demat form can apply. You must meet basic eligibility criteria such as age, KYC compliance, and maintain a portfolio with accepted fund types.

What types of mutual funds are eligible for a loan?

Loans are typically offered against equity, debt, or hybrid mutual funds from SEBI-registered AMCs. The eligibility may vary by lender, and only select funds may be approved under their list of accepted securities.

How much loan can I get against my mutual fund units?

The loan amount depends on the Loan-to-Value (LTV) ratio, which can go up to 90% of the fund’s market value. The final sanctioned amount also depends on your portfolio and the lender’s assessment.

Will I still earn returns on pledged mutual funds?

Yes, you continue to earn potential returns like dividends and NAV growth on your pledged mutual funds since the units remain in your name. However, access to selling or switching them is restricted during the loan tenure.

Is the loan disbursed instantly?

Loan disbursal is usually quick, especially with digital applications. With Bajaj Finserv, funds are often disbursed within 24 to 48 hours of successful pledge and approval, subject to documentation and lender’s internal checks.

What is the interest rate for loans against mutual funds?

Interest rates typically start around 8% to 15% per annum and may vary based on the type of mutual fund, tenure, and lender’s policy. Bajaj Finserv offers competitive interest rates for such secured loans.

Can I repay the loan before the tenure ends?

Yes, prepayment is allowed. Many lenders, including Bajaj Finserv, offer flexible repayment with minimal or no prepayment charges, enabling you to close the loan early and release your pledged mutual funds.

What happens if the value of my mutual funds drops?

If the NAV falls and the LTV exceeds permissible limits, the lender may ask for margin maintenance. You might need to pledge additional securities or partially repay the loan to restore the required margin.

How can I apply for a loan against mutual funds with Bajaj Finserv?

You can apply online through the Bajaj Finserv website by logging in, entering your portfolio details, and completing KYC. After verification and pledge setup, funds are quickly disbursed into your account.

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