Blog

In today’s dynamic financial landscape, smart investors are not just looking for high returns but also for liquidity and flexibility. One powerful yet often overlooked financial tool that offers both is a Loan Against Mutual Funds. If you're sitting on a robust portfolio of mutual funds, you might be sitting on an untapped resource that can serve your short-term financial needs—without selling your investments

.

What is a Loan Against Mutual Funds?

A Loan Against Mutual Funds is a type of secured loan where your mutual fund units act as collateral. Instead of liquidating your mutual fund investments in times of financial need, you can pledge them to a bank or non-banking financial company (NBFC) and borrow a percentage of their value—typically up to 60–70% for equity mutual funds and up to 80–85% for debt mutual funds.

Key Benefits of Loan Against Mutual Funds

1. Retain Ownership

One of the biggest advantages is that you don’t have to redeem your mutual funds. This means you continue to enjoy the potential market appreciation and dividends, if applicable.

2. Quick Access to Funds

Loan Against Mutual Fund offers fast processing—often within 24 to 48 hours. Since the loan is secured, the documentation is minimal, and disbursal is quick.

3. Lower Interest Rates

Compared to unsecured personal loans or credit card debt, loans against mutual funds generally come with lower interest rates, making them a more cost-effective borrowing option.

4. Flexible Usage

There are no restrictions on usage. Whether it’s for medical emergencies, business expansion, education expenses, or travel, you can use the funds for any purpose.

5. Credit Score Friendly

As this is a secured loan, it's easier to qualify even with a moderate credit score. And timely repayment can help improve your credit profile.

How It Works :

Here’s a simple step-by-step breakdown:

1. Choose a lender that offers Loan Against Mutual Fund.
2. Pledge your mutual fund units these can be in demat form or physical format (subject to the lender’s policies).
3. The lender will assign a loan-to-value (LTV) ratio based on the fund type.
4. Once approved, the loan amount is disbursed to your account.
5. You repay via EMIs or as per the agreed terms; meanwhile, your investments remain intact.

Things to Keep in Mind

• Market Risk: The value of mutual funds fluctuates. If the value drops significantly, you may be required to pledge additional units or repay part of the loan.
• Interest Accumulation: Though the rates are lower, unpaid interest can add up. Use this facility wisely.
• Loan Tenure: Tenures can range from a few months to a few years—choose based on your cash flow situation.

Who Should Consider Loan Against Mutual Fund ?

• Salaried individuals facing a temporary cash crunch
• Business owners looking for short-term liquidity
• Investors who want to retain market exposure while unlocking funds

Conclusion

​

Your mutual fund portfolio is more than just a long-term wealth creation tool it can also be a source of liquidity when you need it most. A Loan Against Mutual Funds allows you to tap into your investments without giving them up, combining the power of financial flexibility with the prudence of wealth retention.

Before opting for a Loan Against Mutual Fund , compare offerings from different lenders, understand the terms, and ensure your repayment capacity. Used wisely, this financial product can be a strategic move in your overall financial planning toolkit.