Loan against Mutual Funds: Smart Borrowing or Hidden Risk?
There's a smarter solution called Loan against Mutual Funds (LAMF), a facility which allows you to raise funds without selling your investments. By pledging your mutual fund units, you retain ownership and continue to earn potential market returns. More importantly, you avoid triggering capital gains tax.
Loan against mutual funds is a form of secured lending. You pledge your mutual fund units (equity or debt) as collateral. The loan amount depends on the Net Asset Value (NAV) and the fund type. Generally, you can borrow 50–60% of the NAV for equity funds and 80–90% for debt funds.
The final eligibility depends on the fund's liquidity, volatility, and past performance. Equity funds, being more volatile, usually attract lower loan-to-value (LTV) ratios than debt funds.
Once the loan is sanctioned, the pledged units continue to stay invested. You benefit from any market upside unless you default. Many banks have digitised the process, offering faster approvals and minimal paperwork.
Lenders look at several factors before sanctioning a loan:
Based on this, the bank decides the loan amount, interest rate, and tenure. Riskier funds or poor credit scores will likely mean tighter terms.
The biggest benefit of LAMF is liquidity without liquidation. You get access to cash while your investments remain intact and continue to grow. You also avoid premature exit from long-term goals such as buying a house or funding retirement.
There's no capital gains tax since you're not selling your units. And because this is a secured loan, the interest rates are generally lower than those on personal loans. Processing is often quicker too, with many banks offering digital applications and flexible repayment options suited to short-term needs
Personal loan vs loan against mutual funds
The core difference between a personal loan and loan against securities, such as mutual funds, is in collateral and cost. A personal loan is unsecured, easier to access, but lenders charge higher interest rates to offset the risk.
In contrast, loans against securities are secured loans. You pledge your mutual fund units, shares, or bonds. This lowers the lender's risk and brings down the interest rate, often by a few percentage points. Moreover, you retain ownership of your investments and can benefit from any market upside while tapping into short-term liquidity.
Loans against mutual funds aren't without risks. A market downturn can lower your NAV. That may lead to a margin call, requiring you to top up the collateral, or the lender may sell part of your units. Here are a few rules to consider regarding these loans:
Loans against mutual funds are best used for short-term needs. Used wisely, they are a great way to unlock liquidity without halting your wealth journey.
Adhil Shetty is the CEO of BankBazaar.com
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The Wire
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Mukesh P Kalra, CEO, ET Money. • To help Indians access ultra-low-cost credit without interrupting the compounding of their long-term investments New Delhi, July 10, 2025: ET Money, India's leading long-term investments platform and part of the 360 ONE WAM group, has announced its entry into secured lending with the launch of Loans Against Mutual Funds (LAMF). The offering will be accessible through ET Money's Android and iOS apps, and loans will be facilitated via NBFC partnerships. This marks a significant milestone in ET Money's journey toward building a full-stack digital wealth platform for India's mass affluent. LAMF allows investors to borrow against their existing mutual fund holdings instantly, securely, and without liquidating them. The product ensures compounding continues uninterrupted while giving mutual fund investors access to flexible, low-cost liquidity anytime, anywhere. 'At ET Money, we've always focused on helping Indians participate in the country's long-term wealth creation story by enabling digital and systematic investments in mutual funds. But while aspirations are long-term, life often throws short-term needs our way at times, unplanned expenses, while at others, unexpected emergencies. In such moments, investors are forced to trade off their long-term savings goals,' said Mukesh Kalra, CEO, ET Money. 'With Loans Against Mutual Funds, those trade-offs become a thing of the past. We're thrilled to introduce a seamless way to unlock the value of long-term assets to meet today's priorities without interrupting the journey of wealth creation,' Kalra added. This 100% digital offering enables users to: • Instantly check the limit they are eligible for and apply online • Digitally lien-mark the mutual fund units to partner NBFC in real time • Get access to funds within minutes, with a flexible overdraft facility • Repay principal, interest, or any combination on their own terms with zero foreclosure charges Unlike personal loans, borrowers pay interest only on the amount they use, and only for the duration they use it. There are no fixed EMIs, and the facility can be reused without reapplying, making it ideal for planned expenses and emergencies. LAMF is not just a new product; it's a new way of thinking about credit. It empowers Indians to mobilise their most widely held financial asset, mutual funds, as an instrument of short-term financial flexibility. In doing so, ET Money expands access to low-cost, collateral-backed credit while promoting disciplined investing behaviour. By offering digital-first, collateral-backed loans, ET Money reinforces its mission of empowering users at every step of their financial journey, making it possible to live fully today, while continuing to build for tomorrow. About ET Money ET Money is one of India's leading platforms for long-term investments and wealth management. ET Money now operates as a 100% subsidiary of 360 ONE WAM, India's premier wealth management firm, after the latter acquired Moneygoals Solutions Limited (MGSL) and its wholly owned subsidiary, Banayantree Services Limited (BTSL), which owns and operates ET Money. It empowers millions of users to make smarter financial decisions through a blend of intuitive design, investor-first thinking, and data-driven technology. ET Money helps users track, manage, and get advice on over ₹35,000 crore across mutual funds, insurance, NPS, FDs, and now secured credit via Loans Against Mutual Funds—continuing its mission to simplify how Indians grow, protect, and manage their wealth. (Disclaimer: The above press release comes to you under an arrangement with NRDPL and PTI takes no editorial responsibility for the same.).
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