Loan Against Mutual Funds

Loans against mutual funds provide you with access to secured loans that enable you to borrow against the value of existing investments, with multiple banks and NBFCs offering this service. They’re easy to process without needing income proof or credit score verification – plus, SIPs may still continue without interruption!

Interest rate

Loan against mutual funds (LAMF) is an investment facility that allows investors to borrow against equity or debt funds without incurring high interest rates and making the process straightforward. Benefits include low rates of interest and efficient processing. LAMF also helps investors meet short-term financial goals without liquidating existing investments – however investors must remember that loans against MFs must be repaid within a set time frame.

Investors can borrow up to 50% of the net asset value of their funds and use that money for any personal or professional purpose – while still earning dividends and appreciating their assets during repayment of a loan.

Banks and nonbanking financial companies (NBFCs) offer mutual fund loans at extremely competitive rates. The application process is quick, simple and digital – simply visit their websites and follow their lending instructions online – you may even pledge the folio number and tenure as security for the loan!

Repayment period

Loaning against mutual funds can be an ideal solution to meet short-term capital requirements and protect against market volatility risk. But borrowing against your mutual fund investments should only be undertaken if absolutely necessary – otherwise excessive debt could arise and derail your plans for financial success.

If you want a loan against your mutual fund investment, the only way is to pledge some or all of its units with a bank or lending institution (NBFC). Once pledged, these units will become lien and cannot be redeemed until all debt has been cleared – plus, banks may sell your units as part of recovering their debt!

Smallcase offers an online platform that enables individuals to digitally lien mark their mutual fund units and get loans against them instantly – providing greater liquidity compared to loans against gold, properties or credit cards.

Lien on mutual fund units

Loan against mutual funds operate similar to overdraft facilities offered by banks: A borrower can secure a loan from any non-banking financial organization (NBFC) or bank by pledging his mutual fund units in his demat account with them; their value and term will determine their loan amount; this option does not alter ownership rights to these shares.

Once a loan has been repaid, the financier requests the fund house or registrar to release any lien on units held by investors. If this lien remains, the financier reserves the right to sell and redeem them with the fund house; this can result in loss for investors as well as impact their credit score negatively. Alternatively, if an investor can afford part of their loan payments before repaying all at once, then a partial removal can take place and allow him/her to remain invested while earning dividends from market returns.


Investors invest in mutual funds with the intention of reaching medium and long-term goals, but unexpected financial needs could force them to redeem their investments before reaching those objectives. This would disrupt their journey toward reaching those objectives. Investors looking for liquidity without liquidating their holdings should avail of a loan against mutual fund, typically taking less than 15 minutes to pledge it as collateral. A lender will review your application and approve a loan based on the Net Asset Value (NAV) of your mutual funds, marking a lien against them in your folio. You can avail of this facility with both equity and hybrid mutual funds; however, pledged units won’t be redeemable until repayment of your loan has taken place.

Banks and non-banking financial companies frequently offer loans against mutual fund assets as collateral-backed loans with lower interest rates than personal or credit card loans.

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