In today’s fast-paced financial environment, people often need quick access to funds—whether for emergencies, business needs, or personal expenses. Instead of redeeming your mutual fund investments and losing out on potential returns, there’s a smarter alternative: Loan Against Mutual Funds (LAMF).
In this comprehensive guide, we’ll explore what LAMF is, how it works in India, eligibility, interest rates, pros and cons, and top banks and NBFCs offering this facility in 2025.
🧠 What is a Loan Against Mutual Funds?
A Loan Against Mutual Funds allows investors to pledge their mutual fund units as collateral to secure a loan. Unlike selling your mutual fund holdings, this facility helps you retain ownership while accessing liquidity.
The amount you can borrow is a percentage of the fund’s current value—usually up to 70–80% for debt funds and 50–60% for equity funds.
💡 Key Highlights of Loan Against Mutual Funds
| Feature | Details |
|---|---|
| Loan Amount | ₹10,000 to ₹5 crore (varies by provider) |
| Eligible Funds | Equity, Debt, Hybrid Mutual Funds |
| Loan-to-Value (LTV) | 50% (Equity), 70–80% (Debt) |
| Interest Rates | 9% to 13% p.a. (depends on lender and fund type) |
| Tenure | Up to 36 months |
| Processing Time | 24–48 hours (in most cases) |
| Ownership | You retain fund ownership; only lien is marked |
🏦 How Loan Against Mutual Funds Works
Step-by-Step Process:
- Choose a lender (bank, NBFC, or fintech).
- Apply online or offline by submitting PAN, Aadhaar, and mutual fund folio details.
- Lender evaluates the fund NAV and assigns an LTV ratio.
- Lien is marked on your mutual fund units (via NSDL or CAMS).
- Loan amount is disbursed to your bank account.
- You repay via EMIs or interest-only payments, depending on the agreement.
🔍 Eligibility Criteria
| Requirement | Details |
|---|---|
| Age | 21 to 65 years |
| Type of Investor | Resident Indians, NRIs (select cases) |
| Fund Type | Listed, non-ELSS mutual funds |
| Ownership | Sole or joint holders with NOC from co-holders |
| Credit Score | 650+ preferred, but not always mandatory |
🏦 Top Banks & NBFCs Offering Loan Against Mutual Funds in India (2025)
| Lender | Max Loan Amount | Interest Rate | Tenure |
|---|---|---|---|
| HDFC Bank | ₹1 crore | 9.25% – 11.75% | 12–36 months |
| ICICI Bank | ₹5 crore | 10% – 12% | Up to 36 months |
| Axis Bank | ₹50 lakh | From 10.5% | Up to 36 months |
| Bajaj Finserv | ₹3 crore | 11% – 13% | Flexible |
| Aditya Birla Capital | ₹25 lakh | Starts at 9.75% | Up to 3 years |
| Groww/Paytm Money (Fintechs) | ₹10,000+ | From 10% | Short-term |
Note: Actual terms may vary based on mutual fund value, fund house, and borrower profile.
📈 Equity vs Debt Mutual Funds for Loans
| Parameter | Equity Mutual Funds | Debt Mutual Funds |
|---|---|---|
| LTV Ratio | ~50% | ~75–80% |
| Risk | High NAV fluctuation | Relatively stable |
| Popular for | Long-term investors | Conservative investors |
| Suitability | Short-term urgent needs | Higher loan amounts |
✅ Advantages of Loan Against Mutual Funds
- Retain investments while accessing liquidity
- No prepayment charges with many lenders
- Lower interest rates compared to personal loans
- Quick processing—often within 24 hours
- No impact on mutual fund growth (you still earn returns)
❌ Disadvantages to Consider
- Market-linked risk: NAV fluctuation may affect LTV
- Only non-ELSS funds allowed (as ELSS have 3-year lock-in)
- Lien blocks fund redemption until the loan is cleared
- Margin calls may occur if fund value drops significantly
- Not tax-deductible (unlike home or education loans)
📌 Use Cases: When to Consider LAMF
- Emergency medical expenses
- Short-term business funding
- Bridge finance for property purchase
- Avoiding redemption in a falling market
- Personal events like weddings, travel, etc.
🔒 Tax Implications
- Loan proceeds are not taxable.
- Since you’re not redeeming the units, there is no capital gains tax.
- However, if you fail to repay and the fund is redeemed by the lender, capital gains will be applicable on that date.
🧪 Example Scenario
Investor: Ramesh owns ₹10 lakh in a debt mutual fund.
Loan Sanctioned: ₹8 lakh (80% LTV) from HDFC Bank
Interest: 10% per annum
Tenure: 12 months
Repayment: Interest-only monthly; principal at the end
This way, Ramesh retains his investments while meeting urgent needs—without redeeming his portfolio prematurely.
🤔 Should You Opt for a Loan Against Mutual Funds?
LAMF is an excellent option if:
- You need funds urgently but want to avoid disturbing long-term investments.
- You’re looking for a lower-interest alternative to personal loans or credit cards.
- You own a well-diversified mutual fund portfolio in non-ELSS schemes.
However, always assess the loan terms, your repayment capacity, and whether the market volatility could impact your pledged assets.
📣 Final Thoughts
Loan against mutual funds in India is gaining popularity as a flexible and cost-effective financing option. It allows investors to manage liquidity needs without compromising on long-term financial goals. As digital platforms and banks streamline the process further in 2025, it’s becoming more accessible—even for retail investors.
If used responsibly, LAMF can be a powerful personal finance strategy.
📚 FAQs on Loan Against Mutual Funds
Q1. Can I take a loan against SIP investments?
Yes, but only on the units that are already accumulated and not locked in.
Q2. Are tax-saving mutual funds (ELSS) eligible?
No, due to the 3-year lock-in, ELSS funds are not eligible for pledging.
Q3. Is CIBIL score checked for LAMF?
Not always. Some fintech platforms may approve loans without strict credit checks.
Q4. Can I prepay the loan early?
Yes, many lenders offer zero prepayment penalties.