Things to consider before applying for a Loan Against Mutual Funds

Before pledging your investments, examine the following factors carefully to understand whether the facility suits your financial requirement.

Who is eligible to apply?

Bajaj Finance accepts applications from resident Indians aged between 21 and 90 years. Both salaried and self-employed individuals can apply. Applicants must hold an eligible mutual fund portfolio worth at least Rs. 50,000. Required documents include PAN, KYC proof, and a Consolidated Account Statement. Acceptable KYC documents include Aadhaar, passport, or voter ID. Jointly held investments may require consent from every registered holder before lien marking.

How much can you borrow?

The loan-to-value ratio indicates how much you can borrow against the current market value of your pledged units. The applicable ratio varies across equity, debt, liquid, and hybrid schemes. Bajaj Finance provides a limit of up to 90% of the eligible fund value. However, debt funds may receive higher ratios than equity funds because they generally experience lower price volatility. Avoid withdrawing the maximum available limit without maintaining a buffer. Even a moderate fall in NAV could otherwise create a margin shortfall.

Which interest rates and charges apply?

The applicable annual interest rate ranges from 7% to 12.25%. Interest is charged only on the amount actually withdrawn from the assigned limit. The processing fee can be up to 4.72% of the loan amount, including applicable taxes. Renewal, lien, un-lien, pledge confirmation, bounce, penal, and depository-related charges may also apply. Full and part-prepayment charges are nil for sanctioned amounts up to Rs. 5 Cr. Higher sanctioned amounts may attract charges of up to 4.72%, subject to the applicable borrower and interest-rate exemptions.

Which mutual funds can be pledged?

Fund eligibility depends on the lender’s approved scheme list. Bajaj Finance accepts over 5,000 funds from more than 40 asset management companies. Selected equity, debt, liquid, and hybrid funds may qualify for pledging. However, approval does not depend solely on the broader fund category. For example, ELSS units that remain within their statutory lock-in period may not qualify. Confirm scheme eligibility before planning the required loan amount.

What risks should you consider? 

Market volatility is one of the main loan against securities risks. A decline in NAV reduces the value of the collateral supporting your outstanding loan. If the applicable LTV is breached, the lender may ask you to pledge additional eligible units or repay part of the outstanding amount. Failure to address the shortfall may result in the sale of pledged units. Such liquidation could occur during unfavourable market conditions. It may convert temporary portfolio losses into realised losses and disrupt your investment strategy.

How do tax and regulatory considerations affect the loan?

Lien marking does not involve redemption, so pledging mutual fund units generally does not trigger capital gains tax. However, tax may arise if units are later sold or liquidated. The tax treatment of loan interest depends on how the borrowed money is used. Consider professional tax advice when using the funds for business or income-generating purposes.

Loan against mutual funds vs personal loan: which is better?

Choosing a loan against mutual funds or a personal loan depends on whether you hold eligible investments and can manage market-related risks.

How to apply for a loan against mutual funds with Bajaj Finance

Understanding how to apply for loan against mutual funds online is simple because Bajaj Finance provides a digital application process.

Steps to apply

1. Visit the Bajaj Finance page on bajajfinserv.in and select Apply Now.
2. Enter your registered mobile number and verify it using the received OTP.
3. Provide your PAN, personal details, KYC information, and bank account details.
4. Enter the required mutual fund folio or investment holding information.
5. Select eligible units and review the limit calculated using their NAV and applicable LTV.
6. Complete the electronic agreement, electronic mandate, and other required verifications.
7. Authorise lien marking through CAMS, KFintech, or the applicable depository.

8. Receive the approved amount after successful pledging, usually within 24 to 48 working hours.

   
   

   Use the OTP-based Apply Now option on the Bajaj Finance website to begin your application.

A loan against mutual funds can provide short-term liquidity while allowing eligible investments to remain in the market. However, continued investment does not guarantee that portfolio returns will exceed borrowing costs.
Before proceeding, calculate a comfortable withdrawal amount, retain an LTV buffer, and identify a dependable repayment source. Also review the approved fund list, interest rate, fees, and margin-shortfall procedure.
Apply only when you can manage monthly interest and possible collateral-value changes without disturbing essential finances. Otherwise, partial redemption or another borrowing option may be more appropriate.