A loan against mutual funds (LAMF) lets you borrow money by pledging your fund units as collateral instead of selling them. A digital lien is marked via CAMS or KFintech, you keep owning the units, and lenders typically advance ~50% of value for equity funds and up to ~80% for debt funds at around 9–12% interest (varies by lender, as of 2026) — usually as an overdraft where you pay interest only on what you actually use.
This is one of the cheapest ways to raise short-term cash if you already hold mutual funds, because it sits between an unsecured personal loan and a gold loan on cost — and you stay invested the whole time. Below is exactly how eligibility, loan-to-value (LTV), the lien process, and the margin-call risk work in India in 2026.
What is a loan against mutual funds?
A loan against mutual funds is a secured loan where your existing mutual fund holdings act as collateral. You don't sell or redeem the units — instead, a lien (a legal charge) is marked on them in favour of the lender. While the lien is active, the units stay in your name and continue to earn returns, but you cannot redeem or switch them until the loan is repaid or the lien is lifted.
Most banks and NBFCs structure this as an overdraft (OD) facility rather than a fixed term loan. You get a sanctioned credit limit based on your portfolio's value, and you can draw, repay, and redraw within that limit. Crucially, interest is charged only on the amount you actually withdraw, for the days you use it — not on the full sanctioned limit. That makes LAMF ideal for unpredictable or short-term needs like a medical emergency, a business cash-flow gap, or bridging a property down-payment, where a lump-sum personal loan would have you paying interest on money sitting idle.
Why people choose it over redeeming
The whole point is to avoid breaking your investment. If you redeem equity units you may trigger capital-gains tax, lose out on future compounding, and crystallise a loss if markets are down. A loan against your units keeps your SIPs and long-term plan intact — you're borrowing against growth, not cashing it out. If you're weighing this trade-off, our explainer on SIP vs lumpsum and staying invested is a useful companion read.
Eligibility: who can pledge mutual funds
Eligibility is more about the units than your salary, because the loan is secured. Typical criteria across lenders in 2026:
- Age: usually 18 to 75 years (the borrower must be a resident individual; HUFs and some entities are accepted by select lenders).
- Holdings: units must be held in your name, free of any existing lien, and from an approved fund list the lender maintains (not every scheme qualifies — exotic, sectoral, or very new funds are often excluded).
- Minimum portfolio value: lenders set a floor, commonly somewhere in the ₹50,000–₹1 lakh range of pledgeable value, below which the loan isn't economical.
- Demat or statement-of-account (SOA) units: both are generally accepted; the lien is marked through the relevant Registrar and Transfer Agent (RTA).
- KYC: PAN, Aadhaar and bank details for the disbursal account.
Because the loan is collateral-backed, your credit score matters less than for an unsecured loan, but a clean record still helps with pricing and approval speed. Curious where you stand? You can check your credit score for free before you apply.
LTV: how much can you borrow?
Loan-to-value (LTV) is the percentage of your holdings' market value that the lender will advance. It's deliberately kept below 100% to create a safety cushion against price falls. The big split is between equity and debt funds:
| Fund type | Typical LTV (2026) | Why |
|---|---|---|
| Equity mutual funds | ~50% of value | NAV is volatile, so a larger buffer protects the lender |
| Debt / liquid funds | up to ~80% of value | More stable NAV, lower price risk → higher advance |
| Hybrid / balanced funds | ~50–65% | Treated based on equity exposure |
So if you pledge ₹10 lakh of an equity fund, expect a sanctioned limit of roughly ₹5 lakh; the same ₹10 lakh in a debt fund could fetch closer to ₹8 lakh. LTV caps and the approved-scheme list are set by each lender within RBI's prudential norms, so they vary — confirm the exact LTV for your specific schemes before you count on a number.
Interest rates, charges and how GST applies
Because it's secured, LAMF is usually cheaper than an unsecured personal loan and often comparable to or cheaper than a gold loan. As of 2026, rates broadly sit around ~9–12% per annum, varying by lender, the benchmark used, and your profile. Most are floating and linked to an external benchmark such as the EBLR (External Benchmark Lending Rate, commonly repo-linked) — meaning when the RBI changes the repo rate, your rate resets at the next reset date. We're deliberately not quoting an exact rate or repo number as fixed fact, because both move; always confirm the live rate with the lender.
Other costs to expect:
- Processing fee: a one-time fee (often a small percentage of the limit, sometimes capped).
- Annual renewal/maintenance charge on the overdraft facility.
- Lien-marking / RTA charges: usually nominal.
- GST: note that 18% GST applies to the processing fee and other charges — not to the loan principal or the interest itself.
Because interest accrues only on the drawn balance, the effective cost of an OD can be far lower than the headline rate suggests if you dip in and out. Before borrowing, it's worth modelling the outflow on an EMI calculator (for a term-loan structure) so you know what repayment looks like.
The digital lien process: CAMS and KFintech
Pledging is almost entirely paperless in 2026, handled through the two main RTAs that service Indian mutual funds — CAMS and KFintech (KFin). The typical flow:
- Apply and get sanctioned. The lender pulls your holdings (via the RTA / Consolidated Account Statement), identifies eligible schemes, and offers a limit based on LTV.
- Mark the lien. You authorise a digital lien on the chosen units. The RTA (CAMS for AMCs it services, KFintech for others) records the lien in the lender's favour and confirms it electronically — often within a day.
- Facility goes live. Once the lien is confirmed, your overdraft limit is activated and linked to your bank account.
- Draw as needed. Withdraw any amount up to the limit; interest starts only on what you draw.
- Repay and lift the lien. Repay flexibly within the facility terms. On full repayment, request a lien removal; the RTA frees the units back to your full control.
During the lien period you still own the units and earn their returns — dividends/IDCW and NAV growth are yours. You simply can't redeem, switch, or transfer the pledged units until the lien is released. New SIP units you buy into other (un-pledged) folios remain fully under your control.
The big risk: margin calls if NAV falls
This is the one thing every borrower must understand. Because the loan is sized off your portfolio's market value, a fall in NAV erodes your collateral cushion. If the value of your pledged equity units drops enough that your outstanding loan breaches the agreed LTV, the lender issues a margin call.
When that happens you'll typically be asked to do one of the following within a short window:
- Pledge additional units (top up the collateral), or
- Repay part of the loan to bring the LTV back in line.
If you don't act, the lender has the right to redeem (sell) some of your pledged units to recover the shortfall — exactly the outcome you took the loan to avoid, and possibly at a bad price during a market dip. This is why equity funds carry a lower LTV and why over-borrowing against a volatile portfolio is dangerous. Borrow with headroom, keep some buffer below the maximum limit, and watch markets if you're heavily drawn down.
LAMF vs personal loan vs redeeming: quick comparison
| Factor | Loan against mutual funds | Personal loan | Redeeming units |
|---|---|---|---|
| Collateral | Your fund units (lien) | None (unsecured) | N/A — you sell |
| Typical cost (2026) | ~9–12% p.a. | Higher, often 11–24% | "Free" but you lose growth + may owe capital-gains tax |
| Stay invested? | Yes | Yes | No |
| Interest charged on | Only amount drawn (OD) | Full disbursed amount | — |
| Key risk | Margin call if NAV falls | Higher rate, EMI burden | Lost compounding, taxable gains |
| Best for | Short-term/flexible cash needs | When you hold no investments | When you genuinely need to exit the fund |
For most people who already hold a solid portfolio, LAMF wins on cost and on keeping their plan intact. If you're still building that portfolio, start with our guide on mutual funds for beginners and use the SIP calculator to plan contributions.
Should you take a loan against mutual funds?
Consider it when all of these are true: you have a short-term or flexible cash need, you'd otherwise pay a higher rate (or trigger tax) by other routes, and you can stay comfortably under the LTV with room for market dips. Avoid it if your need is long-term (the OD renews annually), if your portfolio is small and volatile, or if you'd panic during a margin call.
Want to see what you qualify for across lenders without hurting your score? Run a free eligibility check on /apply — it's a soft credit pull with no impact on your credit score, and it shows secured and unsecured options side by side. To see how borrowing fits your wider goals, map it out in our financial planner.
Disclaimer: Interest rates, LTV caps, eligible-scheme lists and rules vary by lender and change over time — always verify the current terms directly with the lender before borrowing. RupeeQuik is a marketplace that connects users to RBI-regulated lending partners and does not lend directly.
Frequently Asked Questions
Can I take a loan against mutual funds online without selling them?
Yes. The entire process is digital — you pledge your units via a lien marked through CAMS or KFintech, and you never redeem them. You keep ownership and continue to earn returns; you simply can't sell the pledged units until you repay and the lien is lifted.
How much loan can I get against equity vs debt mutual funds?
As of 2026, lenders typically advance about 50% of the value of equity funds and up to ~80% of debt/liquid funds, because equity NAVs are more volatile and need a bigger safety buffer. The exact loan-to-value depends on the lender and the specific scheme's approved list.
What is the interest rate on a loan against mutual funds in 2026?
Rates are generally in the ~9–12% per annum range, varying by lender, your profile and the benchmark used (often EBLR, which is usually repo-linked and resets when the RBI changes the repo rate). Because it's an overdraft, you pay interest only on the amount you actually withdraw — not the full limit.
What happens if the value of my pledged mutual funds drops?
If the NAV falls enough to breach the agreed LTV, the lender issues a margin call — you must either pledge more units or repay part of the loan within a short window. If you don't, the lender can sell (redeem) some of your pledged units to recover the shortfall, so keep a buffer below the maximum limit.
Is a loan against mutual funds cheaper than a personal loan?
Usually, yes. Because your units secure the loan, LAMF typically carries a lower rate than an unsecured personal loan and you pay interest only on the drawn balance. It's also often comparable to or cheaper than a gold loan. Compare your actual offers on /apply before deciding.
Does taking a loan against mutual funds affect my taxes?
The loan itself isn't taxable income, and because you don't redeem units, you don't trigger capital-gains tax the way selling would. Note that 18% GST applies to the processing fee and charges — not to the principal or interest. Tax rules can change, so confirm specifics for your situation.
