By Akash Sharma Mutual fund units are among the most efficient collateral assets in India’s lending ecosystem — liquid, transparently priced daily at NAV, and held in demat form with CDSL or NSDL which makes pledging and invocation straightforward for lenders. A loan against mutual funds (LAMF) allows investors to access credit against their existing portfolio without selling their units — preserving the investment’s compounding trajectory while unlocking liquidity for immediate needs. In 2026, this facility is available through most major stock brokers, banks, and NBFCs, with digitised processes that allow loan disbursement within hours of pledge creation.
How Loan Against Mutual Funds Works
When you take a loan against mutual funds, you pledge your fund units to the lender as collateral. The units remain in your demat account but are marked as pledged — you cannot sell or transfer them during the pledge period. The lender disburses a loan of up to 50 to 80% of the pledged units’ current NAV value (called the Loan-to-Value or LTV ratio) into your bank account. You pay interest only on the amount utilised (for overdraft-style products) or on the total disbursed amount (for term loan products). When the loan is repaid, the pledge is released and the units revert to free status in your demat account.
LTV Ratios and Eligible Funds
Not all mutual funds are accepted as collateral, and LTV ratios vary by fund category. Equity mutual funds typically attract LTV of 50 to 60% of current NAV. Debt mutual funds attract LTV of 80 to 85% — higher because of their lower volatility. Liquid funds may attract LTV of up to 90%. ELSS funds in their lock-in period are not eligible as collateral since they cannot be invoked by the lender if needed. Sectoral and thematic funds may have lower LTV or be excluded entirely by some lenders due to their volatility.
Where to Get a Loan Against Mutual Funds
Stock Brokers: Angel One, HDFC Securities, and Axis Direct all facilitate loans against mutual fund holdings through their platforms — often in partnership with NBFCs. The pledge is created through the CDSL or NSDL system from within the broker’s app, and loan approval is typically same-day.
Banks: HDFC Bank, ICICI Bank, Kotak Mahindra Bank, and others offer LAMF products to their customers — particularly for holdings in the bank’s own AMC-affiliated funds, though most accept funds from all major AMCs.
NBFC Platforms: Dedicated LAMF platforms like Mirae Asset Nippon Fintech and others provide competitive interest rates on loans against mutual funds, often with digital pledge creation and disbursement processes.
Interest Rates and Cost Structure
Interest on loans against mutual funds typically ranges from 9 to 13% per annum in 2026 — significantly lower than personal loan rates (12 to 24%) and credit card debt (36 to 42%) for the same loan amount. Overdraft-style LAMF facilities charge interest only on the amount withdrawn and only for the duration it is used — making them particularly cost-efficient for short-term liquidity needs. Processing fees are typically 0.5 to 1% of the sanctioned limit, with some lenders offering zero-fee processing on digital applications.
When a Loan Against Mutual Funds Makes Sense
LAMF is most useful for: short-term liquidity needs where selling mutual fund units would crystallise capital gains tax and disrupt long-term compounding; bridge financing between a financial need and an expected income (salary, business receipt, or property sale); emergency expenses where the cost of borrowing (9 to 13%) is lower than the expected return on the pledged investment (12 to 18% for equity funds over the long term).
It is not suitable for: funding speculative investments (the cost of the loan must be covered by the new investment’s return, which is not guaranteed); chronic cash-flow shortfalls (repeated pledging signals that the emergency fund is insufficient and should be rebuilt); or situations where the loan repayment timeline is uncertain (unpaid loans can lead to lender-forced pledge invocation at an inopportune market price).
Overview Table: Loan Against Mutual Funds
| Parameter | Details |
| Eligible Funds | Equity (50–60% LTV), Debt (80–85%), Liquid (up to 90%) |
| ELSS in Lock-In | Not eligible |
| Interest Rate | 9–13% p.a. (2026) |
| Processing Fee | 0–1% of loan amount |
| Disbursement | Within hours to 1 business day |
| Units during Pledge | Remain in demat; gains/dividends accrue; cannot sell |
| Units after Repayment | Pledge released; units revert to free status |
| Who Offers | Brokers (Angel One, HDFC Sec); Banks; NBFCs |
Frequently Asked Questions (FAQs)
Q1. Do my mutual fund units keep earning returns while pledged?
A: Yes — pledged units continue to participate in NAV movements and receive dividend/IDCW distributions during the pledge period. You do not lose investment returns while the loan is active.
Q2. Can I pledge ELSS units to get a loan?
A: Only after the 3-year lock-in is complete. Units under lock-in cannot be pledged as collateral because the lender cannot invoke and sell them if needed.
Q3. What happens if I fail to repay a loan against mutual funds?
A: The lender can invoke the pledge — selling your pledged units at the prevailing NAV to recover the outstanding loan amount. Any excess proceeds after loan recovery are returned to you.
Q4. Is a loan against mutual funds better than a personal loan?
A: For short-term needs — yes. LAMF interest rates (9 to 13%) are materially lower than personal loan rates (12 to 24%) for equivalent amounts, because the pledged funds serve as secured collateral.
Q5. Can I get a loan against mutual funds held in folio form (not demat)?
A: Some lenders and AMCs offer loans against folio-held units through a lien marking process — different from the demat pledge system. Check with your AMC or bank for the specific process for non-demat mutual fund holdings.