Loan Against Mutual Funds vs Redemption: Which Should You Choose?

Redemption means selling some or all your mutual fund units back to the scheme. The amount is calculated using the applicable NAV after considering the relevant cut-off rules, exit load, and other scheme conditions.

Key points to check before submitting a redemption request include:

• Redemption process: You can usually place the request through the AMC, registrar, distributor, or another supported channel.
• Settlement timeline: Most schemes must transfer redemption proceeds within 3 working days, subject to applicable SEBI rules and specified exceptions.
• Exit load: The AMC may deduct an exit load when you redeem within the period stated in the scheme documents.
• Tax impact: Redemption may create a capital gain or loss based on the fund category, holding period, and purchase cost.

• Investment impact: Redeemed units stop participating in future market-linked gains or losses.

  
  

Redemption does not require repayment. However, it permanently reduces the number of units held in the selected scheme.

The main difference is that LAMF creates a secured borrowing obligation, while redemption sells your units permanently.

Compare the total loan cost with the financial effect of selling your units. You can check the applicable terms for a loan against mutual funds.

Here are the differences between loan against mutual funds and mutual fund redemption.

Preserve your investments and still access liquidity with a smart loan against mutual funds

LAMF is secured by eligible mutual fund units. An unsecured loan does not use your investments as collateral, so its rate and eligibility are assessed differently.

Consider these factors when comparing the two facilities:

• LAMF interest rate: Bajaj Finance charges between 7% and 12.25% p.a., subject to the applicable terms.
• Interest calculation: Interest applies only to the amount withdrawn from the assigned loan limit.
• Collateral: Your selected mutual fund units remain lien-marked until the outstanding amount and charges are cleared.
• Use of funds: The borrowed amount may be used for needs such as education, healthcare, weddings, or business expenses.
• Disbursal time: Eligible and approved applications may receive funds within 24 hours after successful verification.

Compare the Key Fact Statement, effective annual rate, processing fee, repayment terms, and default consequences for each offer.

LAMF may be considered when you need funds for a limited period and have a clear repayment source. It also allows eligible units to remain invested during the loan tenure.

You may consider a loan against mutual funds when:

• You can repay the principal and interest within the agreed tenure.
• You want to avoid selling units needed for a long-term goal.
• You understand that the pledged units remain exposed to NAV movements.
• The total borrowing cost is acceptable for your funding period.
• Redemption could create an exit load or capital gains tax liability.

Redemption may be considered when you need money without creating debt. It may also fit a planned withdrawal, portfolio rebalancing, or exit from a scheme that no longer matches your goals.

You may consider redemption when:

• You do not want an interest or repayment obligation.
• You have reached the goal connected with the investment.
• You are rebalancing your asset allocation.
• You can accept the applicable exit load and tax treatment.
• Selling the units will not disrupt another financial goal.

Secure urgent funds today while protecting your long-term goals with a loan against mutual funds

A loan against mutual funds carries repayment and market-related risks. Your pledged units remain exposed to changes in NAV throughout the loan tenure.

Important risks and operational situations include:

• Margin shortfall: A fall in the pledged fund value may reduce the eligible loan limit.
• Top-up request: The lender may ask you to repay part of the outstanding amount or pledge additional eligible units.
• Restricted access: You cannot freely redeem or switch lien-marked units until the lien is removed.
• Default outcome: The lender may invoke the lien and sell pledged units if you do not clear the shortfall or outstanding dues.
• Additional charges: Delayed payments or failed mandates may attract charges under the loan agreement.
• Market risk: Retaining pledged units does not guarantee future growth or returns.

Track your outstanding balance, interest due dates, fund value, and available margin throughout the loan tenure.

LAMF, unsecured loans, overdrafts, and systematic withdrawal plans provide money through different mechanisms. Their costs, repayment requirements, and effects on investments are not the same.

An SWP provides periodic withdrawals by redeeming units. It does not create a loan, but it gradually reduces your mutual fund holding.

Bajaj Finance applies defined age, employment, nationality, and portfolio conditions when assessing an individual LAMF application.

Keep the following documents ready before applying:

• PAN card
• Aadhaar, passport, or voter ID for KYC
• Consolidated Account Statement or mutual fund holding statement

• Bank account details required during verification

  
  

Eligibility does not guarantee approval. The final decision depends on successful KYC, the approved fund list, pledged value, applicable LTV, and Bajaj Finance’s assessment.

Choose LAMF when your funding need is temporary, you can manage repayment, and retaining eligible units supports your investment plan. Choose redemption when you need permanent liquidity, want no repayment obligation, or intend to exit or rebalance the scheme. Neither option protects you from every cost. LAMF involves interest, fees, and margin risk. Redemption may involve exit load, tax, and the loss of future market participation. Compare both outcomes before using a loan against mutual funds.

Protect your long-term wealth while meeting short-term needs with a convenient loan against mutual funds