HDFC digital loan against mutual funds: How it works, interest rates, and key risks

Mint

25-06-2025

Investors can digitally borrow funds against mutual fund holdings, that too without redeeming them. The pledged units remain invested, permitting investors access to funds while maintaining market exposure.
One such facility is provided by financial institutions such as HDFC Bank, ICICI Bank, Axis Bank among others through their online platforms. These services allow borrowers quick access to credit by pledging eligible mutual fund units without redeeming them.
A loan against mutual funds (LAMF) allows investors to pledge their fund units as collateral to get a credit line or overdraft. This also helps individual borrowers to meet short term financial needs and aspirations. That too without liquidating long term investments. Now, the loan amount depends on the type, value and investment time of mutual funds pledged.
However, given the concept of LAMF definitely provides liquidity without disturbing long term investments, still borrowers must tread carefully.
Highlighting the need for caution, Charu Pahuja, CFP, Group Director & COO at Wise Finserv, advises'Digital loans against mutual funds can be a smart short-term solution, but only when used with caution. The loan gets processed online with minimal paperwork, giving you the funds you need—while your mutual fund units continue to stay invested and potentially grow. Always assess repayment ability and risks involved.'
HDFC Bank's LAMF is one among the first entirely automated options available in the market. Aspirational investors can apply through theofficial website of HDFC Bank and its internet banking portal. To apply you can select eligible schemes, authorise pledging through OTP and receive funds in under three minutes.
This facility also provides borrowers to pledge both equity and debt mutual funds. Borrowers can access from ₹ 50,000 up to ₹ 1 crore for debt funds and ₹ 20 lakh for equity funds. Further, the loan to value ratio (LTV) can go up to 80% for debt and 50% for equity funds. To make the process borrower friendly interest is charged only on the amount utilised and there are no fixed EMIs as well.
HDFC Bank's digital loan against mutual funds comes with interest rates ranging from 10% to 15%, with festive offers starting as low as 9.90% per annum. For complete details on the terms, conditions on a case to case basis refer to the official website of HDFC Bank.
Yes, due to Computer Age Management Services (CAMS) integration and a digital first process, investors retain full market exposure. Units remain invested, allowing them to continue earning returns while availing instant liquidity. Check your mutual fund's NAV and loan eligibility regularly.
Ensure pledged funds are not part of ongoing SIPs or redemption plans.
Consider the cost of interest if borrowing for long durations.
Use this facility for emergencies or working capital, not speculative investments.
Due to rising interest in non-traditional lending, HDFC Bank's digital LAMF enjoins investment continuity with instant liquidity. Such a loan product permits investors flexibility even during volatile markets.
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