In the evolving financial landscape of India, more investors are turning to mutual funds as a wealth creation tool. But did you know that your mutual fund investments can also act as collateral for a loan? Yes, Loan Against Mutual Funds (LAMF) is an efficient way to unlock liquidity without redeeming your assets. With the process now available online, availing a loan against mutual funds has never been more convenient.
In this comprehensive guide, we’ll explore everything you need to know about availing a loan against mutual funds online — its features, benefits, process, eligibility, and top providers.
✅ What is a Loan Against Mutual Funds?
A Loan Against Mutual Funds is a secured loan where your mutual fund units are pledged as collateral to the lender. This allows investors to raise funds without selling their holdings. It’s an ideal choice for emergencies, business requirements, education, or short-term liquidity needs.
🔍 Key Features of Loan Against Mutual Funds
| Feature | Description |
|---|---|
| Loan Type | Secured loan (pledged against mutual fund units) |
| Loan Amount | Ranges from ₹10,000 to ₹5 crore (varies by provider and fund value) |
| Tenure | Typically from 1 month to 36 months |
| Interest Rate | 8% to 13% per annum (subject to lender and market conditions) |
| Collateral Type | Equity or debt mutual funds (individual or joint holding) |
| Disbursal Time | Within 24 to 72 hours (online process) |
| Usage Restriction | No end-use restriction unless specified |
📲 How Does an Online Loan Against Mutual Funds Work?
With most banks and NBFCs now offering digital lending platforms, applying for LAMF has become seamless:
- Login to Lender Portal: Visit the bank or NBFC’s website offering LAMF.
- Select Mutual Fund Scheme: Choose the mutual funds to pledge.
- Authorize Pledge: Approve pledge via NSDL/CDSL depository link.
- Loan Processing: Loan amount is calculated based on NAV and fund type.
- Disbursal: Funds are credited to your bank account within 1–2 working days.
🏦 Top Banks & NBFCs Offering Loan Against Mutual Funds Online (2025)
| Lender | Loan Range | Interest Rate | Online Process Available |
|---|---|---|---|
| HDFC Bank | ₹25,000 – ₹5 Cr | 9% – 12.5% p.a. | ✅ |
| ICICI Bank | ₹50,000 – ₹2 Cr | 8.75% – 11% p.a. | ✅ |
| Axis Bank | ₹25,000 – ₹3 Cr | 9.5% – 12% p.a. | ✅ |
| Bajaj Finserv | ₹10,000 – ₹5 Cr | 9.25% – 13% p.a. | ✅ |
| Tata Capital | ₹25,000 – ₹2 Cr | 10% – 13% p.a. | ✅ |
| IIFL Finance | ₹25,000 onwards | 9% – 12.5% p.a. | ✅ |
🎯 Benefits of Taking a Loan Against Mutual Funds Online
1. No Need to Liquidate Investments
You retain ownership and continue to earn capital gains and dividends while using the loan amount.
2. Lower Interest Rates
Compared to unsecured personal loans, interest rates on LAMF are lower due to secured nature.
3. Quick Disbursal
With online application and e-verification, funds can be disbursed in 24–48 hours.
4. Flexible Repayment
You can prepay the loan or repay interest-only amounts during tenure.
5. No End-Use Restriction
Funds can be used for business expansion, medical emergencies, weddings, education, etc.
🧠 Eligibility Criteria
| Criteria | Requirement |
|---|---|
| Age | 21 years and above |
| Investment Type | Must be in individual or joint names (no minors/HUFs) |
| Holding Mode | DEMAT mode preferred (NSDL/CDSL) |
| Fund Type | Listed equity or debt mutual funds accepted |
| KYC | PAN, Aadhaar, bank statement, and address proof required |
📄 Documents Required
- PAN Card
- Aadhaar Card
- Bank Statement (last 3–6 months)
- Mutual Fund Statement (latest)
- Passport-size Photograph (if offline)
Note: Most lenders fetch mutual fund details via CAMS/KARVY during e-verification.
🔁 Loan-To-Value (LTV) Ratio
The Loan-to-Value ratio is the percentage of the fund’s current market value that can be borrowed.
| Mutual Fund Type | Maximum LTV Allowed |
|---|---|
| Equity Mutual Funds | 50% – 60% |
| Debt Mutual Funds | 70% – 80% |
| Liquid Funds | 85% (in some cases) |
LTV depends on the lender’s risk appetite and market volatility.
⚠️ Risks & Things to Keep in Mind
- NAV Fluctuation: If the NAV drops significantly, you may receive a margin call or be forced to pledge more units.
- Over-Leverage: Avoid taking large loans if you’re unsure about repayment capacity.
- Prepayment Charges: Some lenders impose penalties on early closure. Read the fine print.
- Fund Type Restrictions: ELSS and close-ended schemes usually aren’t accepted.
📝 Step-by-Step Online Application Process
Step 1: Visit Lender’s Portal
Go to the official loan against mutual fund page (e.g., HDFC Bank, Bajaj Finserv).
Step 2: Enter PAN & Verify KYC
Your mutual fund portfolio will be fetched using PAN and linked mobile OTP verification.
Step 3: Select Funds to Pledge
Choose from eligible mutual funds shown in the list.
Step 4: Approve NSDL/CDSL Pledge Request
Authorize your fund units to be pledged securely via NSDL or CDSL.
Step 5: Loan Offer & Acceptance
Lender calculates eligible amount and displays interest rate and tenure. Accept the terms.
Step 6: Disbursal
Loan gets disbursed to your linked bank account within 1–2 business days.
🧮 Example Calculation: Loan Against Mutual Fund
| Particulars | Value |
|---|---|
| Mutual Fund NAV per unit | ₹150 |
| No. of Units Pledged | 5,000 |
| Total Value | ₹7,50,000 |
| Loan-to-Value Ratio | 60% |
| Eligible Loan Amount | ₹4,50,000 |
| Interest Rate | 10% per annum |
| Loan Tenure | 12 months |
| Monthly Interest (Approx) | ₹3,750 |
🔁 Comparison: Loan Against MF vs Personal Loan
| Feature | Loan Against Mutual Funds | Personal Loan |
|---|---|---|
| Interest Rate | 8% – 13% | 10% – 18% |
| Collateral | Required (MF units) | Unsecured |
| Processing Time | 24–48 hours | 2–5 days |
| Prepayment Charges | Low to none | Moderate |
| Impact on Investment | None (continues growing) | Not applicable |
🧭 When Should You Use Loan Against Mutual Funds?
- Short-term cash crunch
- Medical emergencies
- Business expansion
- Higher education expenses
- Tax-saving opportunity (avoid capital gains by not redeeming MF)
🔚 Final Thoughts
A loan against mutual funds online is a smart, convenient, and cost-effective way to raise funds without disrupting your long-term investment goals. Thanks to digital innovation, the process is paperless, fast, and secure. However, it is crucial to assess your repayment capacity and choose the right lender based on transparency, interest rates, and LTV.
🔎 FAQs on Loan Against Mutual Funds Online
Q1. Can I get a loan against ELSS funds?
No, most lenders do not accept ELSS funds due to the 3-year lock-in period.
Q2. Do I need to open a new DEMAT account for LAMF?
If you already hold mutual funds in DEMAT form, you don’t need a new account.
Q3. Can NRIs avail loan against mutual funds in India?
Yes, some banks allow NRIs to pledge mutual funds, but terms vary by institution.
Q4. Will I lose my mutual fund units if I fail to repay?
Yes, in case of default, the lender can liquidate your pledged units to recover dues.
Q5. Is pre-closure allowed?
Yes, you can prepay anytime. Most lenders don’t charge foreclosure penalties.