Loan Against Mutual Funds Explained: How it Works and Benefits

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.
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3 minutes
11-November-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.

What is a loan against mutual funds?

A loan against mutual funds is a type of secured loan where investors can use their mutual fund holdings as collateral to obtain funds without selling their investments. This facility allows you to access liquidity while still retaining ownership of your mutual fund units.

In this arrangement, the lender marks a lien on your mutual fund units and offers a sanctioned amount based on their market value. The loan amount depends on the Loan-to-Value (LTV) ratio, which typically ranges between 80% of the fund’s value.

This type of loan is ideal for individuals who require quick access to cash for personal or business needs but do not wish to liquidate their investments.

Key benefits of a loan against mutual funds

A loan against mutual funds offers several advantages that make it a preferred financing option:

  • Retain ownership: You don’t need to sell your mutual fund units; you continue to earn potential returns while availing funds.
  • Quick disbursal: The loan process is typically digital, enabling instant approval and fund transfer within a short time.
  • No foreclosure charges: Many lenders allow you to repay the loan early without penalties.
  • Flexible repayment options: You can choose from interest-only servicing or part-payment structures.
  • Lower interest rates: Being a secured loan, it usually carries lower interest rates compared to unsecured personal loans.
  • No impact on long-term goals: Since you don’t redeem your mutual funds, your long-term wealth-building objectives remain intact.

Eligibility criteria for loan against mutual funds

To qualify for a loan against mutual funds, borrowers must meet certain eligibility conditions set by lenders:

Basic requirements:

  • The applicant should be an Indian resident aged between 18 and 90 years.
  • Both salaried and self-employed individuals are eligible.
  • The mutual funds must be held in dematerialised (Demat) form with approved depositories.

Accepted mutual funds:

  • Both equity and debt mutual funds are accepted, subject to the lender’s approved list of fund houses.

Documentation required:

  • PAN card, Aadhaar card, or any valid identity proof
  • Mutual fund statement
  • Bank account details
  • Signed loan application form
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Loan Against Mutual Funds

Application process for loan against mutual funds

The loan application process is designed to be simple and quick:

  1. Visit the lender’s platform: Go to the official website or mobile app of the lending institution.
  2. Enter mutual fund details: Provide your folio number or link your mutual fund account through the depository.
  3. Check eligible amount: The lender will display the eligible loan amount based on the fund value.
  4. Submit KYC and documents: Upload the required documents for verification.
  5. Lien marking: The lender marks a lien on the pledged mutual funds through the depository.
  6. Loan disbursal: Once verified, the sanctioned amount is credited to your registered bank account.

The entire process is digital and can be completed in a few minutes, making it a seamless way to access liquidity.

Interest rates and charges on loan against mutual funds

The interest rate on a loan against mutual funds depends on factors such as the type of mutual fund, borrower profile, and loan amount. Key details include:

  • Interest rate: Generally ranges between 8% and 15% p.a., lower than most unsecured loans.
  • Processing fee: A nominal one-time charge is applicable.
  • Prepayment charges: Most lenders offer minimal prepayment or foreclosure charges.
  • Renewal or maintenance fee: Some lenders may charge a small annual maintenance fee if the facility is revolving.

Since the interest is charged only on the utilised loan amount, you save on unnecessary costs if you withdraw funds only when needed.

Risks and limitations of loan against mutual funds

While a loan against mutual funds offers quick access to funds, it’s essential to understand the potential risks involved:

  • Market dependency: The loan value depends on the NAV (Net Asset Value) of your mutual funds. A decline in NAV may reduce your eligible limit.
  • Lien restrictions: You cannot sell or redeem pledged mutual funds until the lien is removed.
  • Margin calls: If the value of your funds drops significantly, the lender may ask you to pledge additional units or partially repay the loan.
  • Interest cost: Though lower than unsecured loans, prolonged borrowing can still lead to interest accumulation.
  • Limited liquidity: If a large portion of your mutual funds is pledged, it may restrict future liquidity options.

Conclusion

A loan against mutual funds is a practical solution for investors who need immediate liquidity without disturbing their long-term investment strategy. It combines flexibility, low interest rates, and convenience, making it an attractive alternative to traditional personal loans. By leveraging your mutual funds, you retain the potential to earn market-linked returns while meeting urgent financial needs. However, it’s important to borrow prudently, keeping in mind the market-linked nature of mutual funds and the repayment obligations.

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.

How is the loan amount determined?

The loan amount is determined based on the market value of your mutual fund holdings and the lender’s Loan-to-Value (LTV) ratio, which typically up to 80% of the mutual fund’s current value.

How quickly can I get approved?

Approval for a loan against mutual funds is usually quick, often completed within a few hours through a fully digital process. Once your KYC and lien marking are verified, funds are disbursed to your account promptly.

Can I continue investing after taking out a loan?

Yes, you can continue investing in mutual funds even after taking a loan. However, the pledged units remain under lien and cannot be redeemed or switched until the loan is fully repaid.

Can I repay early or partially?

Yes, most lenders allow you to repay the loan either partially or in full before the tenure ends. There are generally no prepayment or foreclosure charges for early repayment.

How is interest charged?

Interest is charged only on the amount you utilise from the sanctioned limit and for the duration it remains outstanding. This helps you save interest costs if you withdraw funds only when required.

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