Introduction
A Loan Against Mutual Funds (MF) is an innovative financial product that allows investors to access funds by pledging their mutual fund units as collateral. Instead of liquidating your investments, this financing tool enables you to secure quick loans at competitive interest rates while continuing to earn potential market returns.
For Indian investors, this option is becoming increasingly popular due to low interest rates, flexible repayment options, and quick disbursals. In this guide, we will explore the benefits, eligibility criteria, and application process for a loan against mutual funds.
What is a Loan Against Mutual Funds?
A Loan Against MF is a secured loan where you pledge your mutual fund holdings to a bank or non-banking financial company (NBFC) to obtain a loan. The amount you can borrow depends on the Loan-to-Value (LTV) ratio, which varies based on the type of mutual fund:
| Type of Mutual Fund | LTV Ratio |
|---|---|
| Equity Mutual Funds | Up to 50% of NAV |
| Debt Mutual Funds | Up to 80% of NAV |
Unlike personal loans, which have higher interest rates (10%-24%), a loan against mutual funds is a much cheaper alternative, making it an excellent option for urgent financial needs.
Benefits of Taking a Loan Against Mutual Funds
1. Lower Interest Rates
Since this is a secured loan, interest rates are significantly lower than unsecured personal loans or credit card debt.
2. No Need to Sell Your Investments
Your mutual funds remain invested in the market, allowing you to benefit from potential capital appreciation.
3. Quick and Hassle-Free Processing
Many financial institutions offer instant approvals and online processing, ensuring that funds are available within 24 to 48 hours.
4. Flexible Repayment Options
You can opt for interest-only EMIs or regular EMIs, depending on your cash flow. Some lenders also allow bullet payments for principal repayment.
5. No Impact on Credit Score
Unlike unsecured loans, defaulting on a loan against MF does not immediately affect your CIBIL score, as the loan is backed by collateral. However, continued non-repayment may lead to liquidation of pledged funds.
Eligibility Criteria for a Loan Against MF
To qualify for a loan against mutual funds, you must meet the following conditions:
✅ Must be an Indian resident above 21 years of age
✅ Must hold mutual funds in demat or statement of account (SoA) format
✅ The pledged mutual fund scheme should be approved by the lender
✅ Loan amount eligibility depends on the NAV (Net Asset Value) of the funds
How to Apply for a Loan Against MF Online?
Applying for a loan against mutual funds online is a seamless process:
Step 1: Choose a Lender
Compare interest rates and terms from leading banks and NBFCs like HDFC, ICICI, Bajaj Finserv, and Axis Bank.
Step 2: Link Your Mutual Fund Holdings
You’ll need to authorize the lender to mark a lien (pledge) on your mutual fund units.
Step 3: Get an Instant Loan Offer
The lender evaluates your mutual fund portfolio and provides an instant loan offer based on the LTV ratio.
Step 4: Accept the Loan & Get Funds
Once you accept the loan terms, the funds are disbursed within 24 hours to your bank account.
Loan Against MF vs. Personal Loan – Which is Better?
| Feature | Loan Against MF | Personal Loan |
|---|---|---|
| Interest Rate | 9% – 11% | 12% – 24% |
| Processing Time | Instant – 24 Hours | 1-3 Days |
| Collateral Required | Yes (Mutual Funds) | No |
| Impact on Investments | No Need to Sell | Not Applicable |
Clearly, a loan against mutual funds is the better choice if you need funds at a lower cost while continuing to benefit from your investments.
FAQs – Loan Against Mutual Funds in India
🔹 What happens if I fail to repay my Loan Against MF?
- If you fail to repay the loan, the lender can liquidate the pledged mutual fund units to recover the outstanding amount.
🔹 Can I continue to receive dividends on pledged mutual funds?
- Yes! You will still receive dividends (for dividend-paying mutual funds) and NAV appreciation as long as the loan remains active.
🔹 Is there a prepayment penalty on Loan Against MF?
- Most lenders allow prepayment without penalties, but it’s always best to check with your lender. Yenmo offers Loan against MF without any prepayment penalty
Conclusion – Is a Loan Against MF the Right Choice?
A Loan Against Mutual Funds is an excellent financing tool for investors who need liquidity without selling their investments. With low-interest rates, quick approvals, and no impact on investment growth, it is a smart alternative to personal loans or credit cards.
If you’re looking to apply for a Loan Against MF, check out our Loan Against Mutual Funds Home Page for the best loan offers!
