Loan Against Mutual Funds: Borrow Without Selling Units
Loan Against Mutual Funds: Stay Invested and Still Access Cash in 2025
Selling mutual fund units to raise emergency funds is often a costly decision, especially if markets are down or you are in the middle of a long-term investment journey. A loan against mutual funds lets you pledge your units as collateral and borrow against them without actually selling your investment.
Overview of Loan Against Mutual Funds
When you take a loan against mutual funds, you create a lien on your mutual fund units with the lender’s name. The mutual fund registrar (like CAMS or KFintech) marks the lien, and the lender sanctions a loan based on the current Net Asset Value (NAV) of your units.
This product is offered by banks like HDFC Bank, ICICI Bank, Axis Bank, and NBFCs like Bajaj Finserv and IIFL Finance. The loan amount is typically 50% to 80% of the fund value depending on the type of fund (equity or debt).
Interest Rates and Loan-to-Value Ratios
| Fund Type | Typical LTV | Interest Rate (Per Annum) |
|---|---|---|
| Equity Mutual Funds | 50% – 60% of NAV | 10.50% – 14.00% |
| Debt Mutual Funds | 70% – 80% of NAV | 9.50% – 12.00% |
| Hybrid Funds | 60% – 70% of NAV | 10.00% – 13.00% |
| ELSS (Tax Saving Funds) | Not eligible during lock-in | N/A |
Debt funds receive higher LTV because they are less volatile than equity funds. ELSS funds are not eligible for loans during the 3-year lock-in period.
Eligibility
- You must hold mutual fund units in your own name or jointly (with all co-holder consent)
- The units must be in demat form or held in folios registered with CAMS/KFintech
- Minimum portfolio value is usually Rs. 50,000 at most lenders
- No specific income proof or credit score requirement in most cases
- ELSS units in lock-in period are not eligible
Documents Required
- Mutual fund portfolio statement (CAMS/KFintech)
- Aadhaar card and PAN card
- Address proof
- Bank account details
- Loan application form
- Lien creation form (signed by all unit holders)
Application Process
Step 1: Check Eligible Funds
Log in to your mutual fund account on CAMS or KFintech and check which funds are eligible for lien creation. Most liquid, debt, and equity funds from reputed AMCs (SBI MF, HDFC MF, ICICI Prudential MF, etc.) are eligible.
Step 2: Apply at the Bank or NBFC
Submit your application and documents. The lender will initiate a lien creation request through CAMS or KFintech. You will receive an OTP or email confirmation to approve the lien.
Step 3: Loan Disbursal
Once the lien is confirmed, the loan is disbursed to your bank account. The entire process can take 1 to 3 working days for banks, while some digital lenders offer same-day disbursal.
Important Note on Market Volatility
Since your collateral (mutual fund units) can change in value daily, the lender may issue a margin call if the NAV drops significantly. A margin call requires you to either pledge additional units or partially repay the loan to restore the required LTV ratio.
Frequently Asked Questions
Do I continue to earn returns on my mutual funds while the loan is outstanding?
Yes. Since the units are only liened and not sold, your investment continues to earn returns (dividends or growth in NAV) during the loan tenure.
Can I redeem mutual fund units that have a lien on them?
No. Units under lien cannot be redeemed until the lien is removed. To redeem, you must first repay the loan and request lien removal from the lender.
What is the typical loan tenure for loans against mutual funds?
Loans against mutual funds are usually structured as an overdraft facility with a 1-year renewable tenure. Some lenders offer term loans with up to 3-year tenures.
Which banks are best for loans against mutual funds?
HDFC Bank, ICICI Bank, and Axis Bank are among the most active in this space and offer competitive rates. Digital-first platforms and apps from Bajaj Finserv also offer this product with faster processing times.
