Tap Into Your Mutual Funds for a Loan: A Guide

Do you need money quickly but don’t want to sell your investments? A loan against mutual funds could be the answer. It lets you use your investments as collateral, giving you quick access to cash for personal or business needs.

In India, you can use your mutual fund units to get a loan. This comes with good interest rates and flexible payback plans. For example, smallcase offers a 10.5% interest rate per year for such loans, up to Rs. 5 crore. This way, you can use your investments for immediate needs while keeping the potential for growth.

Getting a loan against mutual funds is a secure way to get money fast. It usually requires little paperwork and no credit check. This makes it great for urgent needs like emergencies, weddings, or down payments on a house.

Key Takeaways

You can access funds without selling your mutual fund investments through a loan against mutual funds.
Competitive interest rates are available, such as 10.5% per annum from smallcase.
A loan against mutual funds can be used for various purposes, including emergency expenses and business ventures.
The application process is often digital and paperless, with minimal documentation required.
Loan disbursement can be credited to your bank account within a short period, typically 2 working hours.
No credit score is required for approval, making it accessible to a wider range of borrowers.

Understanding Loans Against Mutual Funds

Need funds? A loan against mutual funds might be the answer. It uses your mutual fund units as collateral. This way, you get the money you need and still earn from your investments.

The loan amount depends on your mutual fund’s current value. The interest rates are often lower than personal loans. This makes it a good option for many.

A loan against mutual funds is a secured loan. It comes with benefits like lower interest rates and flexible repayment terms. You can use the money for unexpected bills or big purchases.

The loan-to-value (LTV) ratio varies. It’s usually between 50% to 80%, depending on the mutual fund type.

Some key features of loans against mutual funds include:

Lower interest rates compared to unsecured loans
Flexible repayment terms, ranging from a few months to a few years
Ability to continue earning dividends or interest on pledged mutual fund units
Quick processing time, typically within one to two days

The LTV ratio for equity mutual funds is lower than debt mutual funds. Equity mutual funds have an LTV ratio of up to 50%. Debt mutual funds can go up to 80%. This means you can borrow more against debt mutual funds.

With the right lender, you can get competitive interest rates and flexible repayment terms. This makes loans against mutual funds a good choice for many.

Can You Get a Loan Against Mutual Funds?

Yes! Banks and NBFCs (Non-Banking Financial Companies) allow you to take a loan by pledging your mutual fund units instead of selling them. This is known as a Loan Against Mutual Funds (LAMF).

2. How Does It Work?

You pledge your mutual fund units to the lender.
The lender offers you a loan based on the Loan-to-Value (LTV) ratio (a percentage of the mutual fund’s value).
Your mutual fund remains invested, but you can’t redeem or sell it until the loan is repaid.
You pay interest on the borrowed amount, just like any other loan.

3. Benefits of Taking a Loan Against Mutual Funds

✅ No Need to Sell – Your investment stays intact, and you still earn returns.
✅ Lower Interest Rates – Cheaper than personal loans (interest rates usually range from 7%–11%).
✅ Quick Processing – Faster approval compared to traditional loans.
✅ Flexible Repayment – You can repay in EMIs or as a lump sum.
✅ Retains Ownership – You still own the mutual fund units.

4. Eligibility & Conditions

You must have mutual fund investments in Demat or Physical form.
The fund type matters:
- Equity Mutual Funds → Loan-to-Value ratio is around 50%.
- Debt Mutual Funds → Loan-to-Value ratio is around 80%.
The lender keeps the units as security, but you continue to receive dividends (if applicable).

5. How Much Loan Can You Get?

This depends on the type and value of your mutual funds. Here’s an example:

Mutual Fund Type	Fund Value	Loan-to-Value (%)	Eligible Loan Amount
Equity Funds	₹10,00,000	50%	₹5,00,000
Debt Funds	₹10,00,000	80%	₹8,00,000

6. Interest Rates & Charges

Interest rates vary (7%–11% p.a.) depending on the lender.
Some banks charge a processing fee (around 0.5%–2%).
If you fail to repay, the lender sells your mutual fund units to recover the money.

7. Where Can You Apply?

Several banks and NBFCs offer this service, including:

HDFC Bank
ICICI Bank
SBI one can apply for loan aginst
Axis Bank
Bajaj Finance

8. How to Apply?

Visit the bank/NBFC website or branch.
Submit a loan application along with mutual fund details.
The lender verifies and approves the loan amount.
Once approved, the loan amount is credited to your account.

9. Key Things to Remember

Loan Against Mutual Funds is a Secured Loan – If you fail to repay, the lender can sell your funds.
Not all Mutual Funds are Accepted – Some small-cap and thematic funds may not qualify.
Consider Alternatives – If you need a small amount, check if a personal loan or overdraft is better.

Benefits of Borrowing Against Your Mutual Fund Units

When you borrow against your mutual fund units, you get access to funds without selling your investments. This is great for those needing quick cash without harming their long-term plans. It helps avoid capital gains tax and other fees that come with selling mutual funds.

Some of the key benefits of loan against mutual funds are:

Immediate liquidity without selling investments
Avoiding capital gains tax and other fees
Lower interest rates compared to unsecured loans
Continued earning of returns on pledged mutual fund units

The mutual fund loan benefits also include flexible loan terms and amounts. You can even renew the loan after 12 months. Plus, the interest rates for these loans are lower, ranging from 8-10%. This is better than what you’d get from unsecured loans.

Eligibility Criteria for Mutual Fund Loans

Understanding the rules for getting a loan against your mutual fund units is key. You need to meet certain criteria. This includes a minimum investment, specific fund types, and a good credit score. You must be an Indian citizen, aged 18 to 75, to qualify for a mutual fund loan.

The minimum value of your security is Rs. 50,000. The loan amount can be 50% to 80% of your mutual fund units’ value. Over 5000 mutual funds are approved, and businesses can borrow up to Rs. 1000 crore.

Minimum investment requirement: Rs. 50,000
Fund type restrictions: Equity and Debt Mutual Funds
Credit score considerations: varies depending on the lender
Loan amount: 50% to 80% of the mutual fund units’ value
Loan repayment period: a few months to a few years

Remember, the rules for mutual fund loans can change. They depend on the lender and the loan type. Always check with your lender to see what rules apply to you.

How to Get Loan Against Mutual Fund Investment: Step-by-Step Process

To get a loan against your mutual fund, follow a simple process. First, check your eligibility by ensuring you are an Indian resident between 18 to 75 years old. Next, choose a lender that offers loans against mutual funds, such as banks or non-banking financial companies (NBFCs).

The loan process involves submitting an application and providing documents. You can apply online or visit a branch in person. Some lenders offer a digital application process that can be completed without physical documentation, with funds disbursed within a few minutes.

Here are the general steps to follow:

Check your mutual fund investment value and ensure it meets the lender’s minimum requirements.
Choose a loan amount and tenure that suits your needs.
Submit your application and provide required documents, such as your PAN and Aadhaar card.
Wait for approval and receive your loan amount.

Ensure you have mutual fund units in either Demat or Physical form.
Verify if your mutual funds are eligible (Equity and Debt funds are generally accepted).
Check the Loan-to-Value (LTV) ratio (50% for equity, 80% for debt funds).

Step 2: Choose a Lender

Compare banks and NBFCs offering Loan Against Mutual Funds (LAMF).
Check interest rates, processing fees, loan tenure, and repayment terms.
Some popular banks & NBFCs offering LAMF:
HDFC Bank
ICICI Bank
SBI
Axis Bank
Bajaj Finance

Step 3: Apply for the Loan

Visit the bank’s website or branch.
Fill out the loan application form.
Submit the required documents:
PAN & Aadhaar (for identity verification)
Mutual Fund Statement
Bank Account Details
Loan Agreement

Step 4: Pledge Mutual Fund Units

If your mutual funds are in Demat form, the lender will mark a lien (pledge) on them.
If you have physical mutual fund units, you may need to transfer them to the lender’s Demat account.
Once pledged, you cannot sell or redeem these units until the loan is repaid.

Step 5: Loan Approval & Disbursal

The bank/NBFC verifies the details and approves the loan amount based on the mutual fund’s value.
The approved loan amount is transferred to your bank account.

Step 6: Repay the Loan

Repay in EMIs or lump sum (as per agreement).
Interest is charged only on the used loan amount (similar to an overdraft).
Once fully repaid, the pledged mutual fund units are released.

Step 7: Closure of Loan

After full repayment, the lien on mutual funds is removed.
You regain full control over your mutual fund units.

Key Things to Remember

Non-repayment can lead to your mutual funds being sold by the lender.
Not all mutual funds are eligible—check with your bank/NBFC.
Processing time is fast, usually 1–3 days.

By following these steps, you can easily get a loan against your mutual fund investment. This way, you can meet your financial needs. Remember to regularly monitor your loan account and mutual fund investment. This will help you stay updated on your loan balance and investment performance.

Documentation Required for Mutual Fund Loans

Applying for a loan against your mutual fund investment requires the right documents. This ensures a smooth loan approval process. You’ll need to provide identity proof, address proof, and income proof.

Here are the mutual fund loan documents you should have ready:

PAN card
Proof of identity
Proof of address
Signature verification

You might also need bank statements and investment statements. Lenders follow KYC requirements, so have all documents ready to avoid delays.

Knowing what documents you need helps prepare everything quickly. This makes it easier to get the funds you need when you need them.

Interest Rates and Loan Terms

When you think about getting a loan against your mutual fund, knowing the interest rates for mutual fund loan and mutual fund loan terms is key. These details can greatly influence your choice. They affect the loan’s cost and how long you’ll pay it back. Usually, mutual fund loans have lower interest rates than personal loans, making them more appealing.

The interest rates for mutual fund loan vary from 8% to 15% a year, based on the lender and loan type. It’s important to compare rates from different lenders to find the best fit for you. Also, look out for fees like processing, prepayment, and annual maintenance charges in the mutual fund loan terms.

When looking at mutual fund loan terms, consider these points:

Loan amount available: Up to ₹1 Crore
Loan-to-value ratio: Up to 90% of mutual fund value
Interest rate range: 8% to 15% per annum

Understanding the interest rates for mutual fund loan and mutual fund loan terms helps you decide if a loan is right for you. Always check the terms and conditions to ensure you’re getting a good deal.

Risks and Considerations

Thinking about a loan against your mutual fund investment? It’s key to know the risks and considerations. Market changes can impact your mutual fund’s value and the loan amount. If the value drops, you might need to add more collateral or pay back part of the loan.

A margin call happens when your mutual funds’ value falls. This means you must add more money or repay part of the loan. If you can’t, the lender can sell your mutual funds, leading to big losses. It’s vital to understand these risks before taking a loan.

Some important things to think about when considering a mutual fund loan include:

Loan-to-value (LTV) ratio: This can range from 50% to 80% of the net asset value (NAV) of the pledged mutual funds.
Interest rates: These can range from 9% to 14% per year, depending on the lender and the type of mutual fund.
Loan processing time: This is typically within one to two days, providing quick access to cash.

Knowing the risks and considerations can help you decide if a loan is right for you. Always think about your financial situation and weigh the risks and benefits before making a choice.

Alternative Options to Consider

Looking into alternative options to mutual fund loan is key. They might have better terms or more flexibility. For example, loans against stocks or bonds could be a good choice. They let you use your investments to get a loan.

There are also other borrowing options like personal loans or credit cards. These have different interest rates and repayment plans. It’s important to look at them closely and pick the one that fits your finances best.

When checking out alternative options to mutual fund loan, think about interest rates, loan length, and how you’ll pay it back. By comparing these, you can choose the best loan for you. For instance, loans against debt mutual funds can offer up to 80% of your investment’s value. The interest rates are also lower, between 8-10%.

Exploring mutual fund loan alternatives and weighing your options carefully is crucial. It helps you find a loan that fits your financial needs and supports your long-term goals. By doing this, you can confidently navigate the lending world and reach financial stability.

Conclusion

Getting a loan against your mutual fund investments can be very helpful. It gives you quick access to money without harming your long-term plans. The benefits include lower interest rates and quicker processing times.

But, it’s important to think about the risks too. Market changes and the chance of not being able to pay back can affect you. Knowing what lenders need and the interest rates they offer helps you decide if it’s right for you.

Using a loan against mutual funds can be wise, but it depends on your situation. This article has given you the tools to understand the process. With this knowledge, you can make a choice that fits your financial goals.

FAQ

What is a mutual fund loan?

A mutual fund loan lets you borrow money against your mutual fund investments. You don’t have to sell them to get the cash.

What types of mutual funds are eligible for loans?

You can use both equity and debt mutual funds as collateral for loans. They must meet the lender’s requirements.

How do mutual fund loans work in India?

In India, you can borrow up to 50% of your mutual fund’s value. The interest rates vary based on the lender and the fund type.

What are the benefits of borrowing against mutual fund units?

Borrowing against your mutual fund units gives you quick access to cash. It avoids the need to sell your investments. This can save you from capital gains tax and other selling fees.

What are the eligibility criteria for mutual fund loans?

Lenders check for a minimum investment, specific fund types, and a good credit score. These are the main criteria for approval.

What is the step-by-step process for getting a loan against mutual fund investment?

First, you submit an application. Then, you provide the necessary documents. Finally, wait for approval from banks or NBFCs.

What documents are required for mutual fund loans?

You’ll need identity and address proof, income documents, bank statements, and investment records. Lenders also check for KYC compliance.

What are the interest rates and loan terms for mutual fund loans?

Interest rates depend on several factors. Loan terms, including repayment periods and prepayment penalties, vary by lender.

What are the risks and considerations with mutual fund loans?

Market changes can affect your mutual fund’s value. There’s a risk of margin calls and default. Losing your units and damaging your credit score are possible consequences.

What are the alternative options to consider when looking for a loan?

Besides mutual fund loans, consider loans against stocks or bonds. Personal loans, credit cards, and home equity loans are also options. Compare these to mutual fund loans.