A Loan Against Mutual Funds (LAMF) is a secured credit product where you pledge your mutual fund units as collateral to obtain funds. Instead of selling your investments, you retain ownership while the lender places a lien on your units. This mechanism enables investors to access liquidity without triggering immediate capital gains taxation, providing a smart way to meet short-term or emergency financial needs.
Key Points
You continue to benefit from potential capital appreciation and dividends on your mutual fund units while the loan is active.
Obtain liquidity by borrowing a percentage of your mutual fund value, determined by the lender’s Loan-to-Value (LTV) ratio.
Upon successful loan repayment, the lien on your pledged mutual fund units is released and full ownership is restored.
In case of non-repayment or default, the lender reserves the right to liquidate the pledged units to recover the outstanding dues.
This approach gives you liquidity without triggering a capital gains event immediately (since the units aren’t sold).
Unlock Liquidity Without Selling: How a Loan Against Mutual Funds Works
If you’re looking to get funds without selling your investments, a loan against mutual funds (or mutual fund pledge loan) is a great alternative. You retain ownership of your mutual funds while using them as collateral to borrow ideal for covering emergencies, business needs, medical bills, or more.
| Benefit | How It Helps (LAMF vs. Personal Loan) |
|---|---|
| Lower Interest Rates | Because your loan is secured by your mutual fund units (collateral), the rates are generally much lower than an unsecured personal loan, which carries higher risk for the lender. |
| No Capital Gains Tax on Disbursement | Since you are only pledging (not redeeming/selling) your funds, there is no immediate capital gains tax liability triggered at the time of borrowing. |
| Keep Investment Growth | Your mutual funds remain in your portfolio, allowing them to continue to grow in value or pay dividends/income distribution while you access the liquidity. A personal loan does not offer this dual benefit. |
| Fast Disbursal | The process is often quicker as the collateral (mutual funds) is easily valued and pledged, making approval and fund disbursal by Fintechs or NBFCs faster than the extensive checks often required for an unsecured personal loan. |
| Interest on Utilized Amount | LAMF is often offered as an Overdraft facility, meaning you only pay interest on the exact amount of money you withdraw and use, not the entire sanctioned loan limit. Personal loans charge interest on the entire disbursed amount from day one. |
| No Prepayment/Foreclosure Charges | Many lenders offer LAMF without prepayment penalties, giving you the flexibility to repay the principal early, unlike many traditional personal loans. |
Sample Scenario
To illustrate how a Loan Against Mutual Funds works, consider the following case:
| Parameter | Details |
|---|---|
| Mutual Fund Portfolio Value | ₹2,00,000 |
| LTV Allowed by Lender | 60% |
| Loan Amount Availed | ₹1,20,000 |
| Interest Rate | 9% p.a. |
| Tenure | 1 Year |
Outcomes
You receive ₹1,20,000 while keeping your investment.
After one year, repay interest (≈ ₹10,800) + principal → total ≈ ₹1,30,800.
Fund units are released after repayment.
Before taking a loan against mutual funds in India compare interest rates, LTV ratio, and repayment terms to get the best deal and save more than a personal loan. Choose a trusted lender offering low interest rates on loans against mutual funds for faster approval.
Check eligible mutual fund schemes, processing fees, and default rules before applying for a loan against securities to avoid risks and protect your investments. Always monitor your mutual fund NAV to prevent margin calls or forced liquidation.
How to Apply for a Loan Against Mutual Funds
Getting a loan against mutual funds is quick and easy with Capital Now. Follow these simple steps:
Choose a lender — Select a trusted provider like a Capital Now .
Download the Capital Now App — Apply directly through the app : Capital Now .
Submit your details — Provide your KYC documents, proof of investment, and credit profile.
Pledge your mutual fund units — This can be done easily through your AMC, broker, or custodian.
Valuation & approval — The lender checks your mutual fund value and decides the Loan-to-Value (LTV) ratio.
Loan disbursal — Once approved, the loan amount is credited to your bank account instantly.
Repay as per schedule — Make EMI or interest payments as per the plan.
Redeem your units — After full repayment, the lien is removed, and your mutual funds are released.
Apply now through the Capital Now App to get quick funds while keeping your investments safe and growing.
A loan against mutual funds is a powerful tool to unlock liquidity without selling your investments, offering lower interest and preserving potential gains. But make sure you understand the terms especially around LTV, interest, repayment, and what happens if markets fluctuate.
If you’re considering this, compare offers from multiple lenders, check their eligibility criteria, and ensure that the savings from not selling your investments outweigh associated costs and risks.