How Loan Against Mutual Fund Work
Mutual funds are one of the most popular investment choices today: easy to start, professionally managed, and designed for long-term wealth creation.
But what if you suddenly need funds for a medical emergency, a down payment, or your child’s education and don’t want to redeem your investments?
A Loan Against Mutual Funds (LAMF) can be the perfect solution. It lets you borrow money by pledging your mutual fund units, giving you instant liquidity while your investments continue to grow.
Let’s understand how it works and why it’s becoming such a smart financial tool for investors in India.
What Is a Loan Against Mutual Funds?
A Loan Against Mutual Funds (LAMF) is a secured loan that allows you to use your mutual fund units as collateral.
Instead of selling them and losing your long-term growth, you temporarily pledge them to the lender, who offers you a credit limit based on their market value.
You continue to own your investments and enjoy potential gains, while the pledged units act as a security until you repay the loan.
How Does It Work?
Step 1. Choose the Funds You Want to Pledge
Both equity and debt mutual funds can be pledged. However, the loan-to-value (LTV) ratio differs — typically:
- Up to 50–60% for equity mutual funds
- Up to 70–80% for debt mutual funds
So, if your portfolio is worth ₹10 lakh, you could get a loan of ₹5–7 lakh depending on the fund mix.
Step 2. Pledge Units Digitally
With the new digital pledge mechanism via NSDL, CDSL, or MF Central, you can complete the entire process online in minutes, no physical paperwork or branch visits.
You log in through your PAN and mutual fund folio, select the funds you wish to pledge, and authorize the pledge digitally through OTP.
Step 3. Loan Approval and Disbursal
Once the pledge is confirmed, the lender (bank, NBFC, or platform like SLiQ) verifies your details and disburses the loan directly into your bank account often within the same day.
Step 4. Interest and Repayment
Interest is charged only on the amount you use. You can repay anytime partially or fully and once cleared, your pledged units are released automatically.
Benefits of Taking a Loan Against Mutual Funds
1. Stay Invested
Your investments continue to participate in the market — meaning you don’t lose potential growth or disrupt your SIP goals.
2. Instant Liquidity
LAMF is one of the fastest ways to raise funds. Digital journeys through SLiQ or banks make it possible to get money in hours, not days.
3. Lower Interest Rates
Since it’s a secured loan, interest rates are usually much lower than personal loans — typically 8–11% p.a.
4. Flexible Repayment
Pay only for what you use and close the loan anytime without penalty. Many lenders even allow top-ups or partial releases.
5. No Credit Score Dependency
Your credit score is less important because your mutual funds serve as security.
Things to Keep in Mind
- Market Fluctuations: Since mutual fund values change daily, a drop in NAV could reduce your LTV, prompting a “margin call.” You may need to repay a part of the loan or pledge more units.
- Eligible Funds: Not all mutual funds are eligible (for example, certain ELSS funds are locked in for 3 years).
- Temporary Lien: You can’t redeem pledged units while the loan is active — they’re marked as lien in favor of the lender.
- Use the Loan Wisely: Best for short-term liquidity or emergencies, not for speculative investments.
Why It’s Gaining Popularity
India’s mutual fund assets under management (AUM) have crossed ₹55 lakh crore, with millions of new investors entering SIPs each month.
As investors grow their portfolios, many are realizing they don’t need to redeem during short-term cash crunches; they can simply leverage their investments through LAMF.
The process is now completely digital, regulated, and safe. Platforms like SLiQ by ValuEnable have made it possible for retail investors to check eligibility, pledge online, and receive funds in just a few clicks combining liquidity, convenience, and financial discipline.
