Loan Against Mutual Funds vs. Loan Against Shares

A loan against mutual funds lets you pledge your mutual fund units to borrow money from a lender. The loan amount is typically based on the current Net Asset Value (NAV) of your holdings usually up to 80% of your investment value. It’s an excellent option for those who want instant funds without redeeming their mutual funds. You continue to benefit from any rise in the NAV while enjoying flexible repayment options.

A loan against shares allows investors to pledge their equity shares to access funds. The loan amount depends on the market value of the pledged shares, typically up to 50% as per RBI guidelines. This loan suits investors who prefer to stay invested while addressing financial needs such as business expansion, medical emergencies, or personal goals.

Compare smartly before you borrow choose between loan against mutual funds vs loan against shares based on your comfort with market risks. Apply now

A loan against mutual funds and shares is offered to investors who pledge their market-linked assets to obtain immediate liquidity. The eligibility mainly depends on age, investment type, portfolio value, and KYC compliance. Financial institutions also approve loans only against funds or shares listed in their approved list.

LTV determines the maximum loan amount one can receive based on the market value of pledged securities. Lenders set different ratios for equity and debt instruments because of varying risk levels. Debt mutual funds usually allow a higher LTV due to relatively lower volatility, whereas equity mutual funds and shares often have a lower LTV.

LTV determines the maximum loan amount one can receive based on the market value of pledged securities. Lenders set different ratios for equity and debt instruments because of varying risk levels. Debt mutual funds usually allow a higher LTV due to relatively lower volatility, whereas equity mutual funds and shares often have a lower LTV.  Type of security  Indicative LTV ratio  Reason for variation  Equity mutual funds  50% of market value  Higher volatility leads to lower loan eligibility  Debt mutual funds  90% of market value  Lower risk due to stable returns, enabling higher LTV  Hybrid mutual funds  60% of market value  Risk depends on debt-equity mix  Listed shares  50% of market value  High market fluctuation restricts LTV  Liquid/Overnight funds  85%–90% of market value  Lowest risk category, hence highest LTV

• Quick processing: Lenders are likely to approve loans against mutual funds swiftly, thanks to the collateral's stability.
• Retain investment: Investors do not need to redeem their mutual fund units, allowing them to continue benefiting from market growth.
• Lower interest rates: Due to the lower risk associated with mutual funds, lenders generally offer more favourable interest rates.
• Flexible repayment: Borrowers can choose flexible repayment options, including bullet payments or equated monthly instalments (EMIs).

• Access to quick funds: Borrowers can quickly obtain funds without selling their shares, preserving their long-term investment strategy.
• Flexible usage: The loan amount can be used for various purposes, such as personal expenses, business investments, or debt consolidation.
• Ownership retention: Investors continue to hold their shares and can benefit from any potential appreciation in their market value.
• Flexible repayment options: Lenders usually provide multiple repayment options, allowing borrowers to repay based on their financial situation.

• Market risks: Although mutual funds are relatively stable, their NAV can fluctuate based on market conditions, potentially affecting the loan's value.
• Interest payments: Regular interest payments are mandatory, which can be a burden if not managed properly.
• Possible margin call: If the mutual fund's value drops significantly, the lender might request additional collateral or partial repayment.

Both loan against mutual funds and loan against shares serve the same purpose helping you access funds without liquidating your investments. The choice depends on your risk comfort, market outlook, and financial goals. If you prefer stability and lower interest, a loan against mutual funds could be ideal. If you are confident about market performance and need higher flexibility, a loan against shares may suit you better.

Ready to unlock liquidity while staying invested? Choose between a loan against mutual funds or loan against shares and take control of your finances today. Apply now

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