HDFC Bank's digital loan against mutual funds
What Is a Loan Against Mutual Funds (LAMF)?
A Loan Against Mutual Funds (LAMF) allows investors to pledge mutual fund units as collateral in exchange for a line of credit or overdraft. It's a convenient option to meet short-term financial needs without selling off long-term investments. The loan amount varies based on the type, value, and tenure of the pledged mutual funds.
How Does HDFC Bank's Digital LAMF Work?
HDFC Bank is one of the first financial institutions to offer a completely digital LAMF service. Through the HDFC Bank website or internet banking, customers can select eligible mutual fund schemes, authorize the pledge using OTP, and receive the loan within three minutes. The platform is powered by CAMS for real-time verification and processing.
Loan Limits and LTV Ratios
Borrowers can pledge both equity and debt mutual fund units:
Loan amount: ₹50,000 to ₹1 crore for debt funds; up to ₹20 lakh for equity funds
Loan-to-Value (LTV): Up to 80% for debt funds, and 50% for equity funds
Interest is charged only on the used amount, and there are no fixed EMIs
Interest Rates on HDFC Bank's Loan Against Mutual Funds
Interest rates range from 10% to 15% per annum, with festive promotional rates starting at 9.90%. Actual rates may vary depending on the borrower's profile and market conditions.
Can You Stay Invested While Borrowing?
Yes. The pledged mutual fund units remain invested, ensuring continued market exposure and the possibility of returns during the loan period.
Key Risks to Consider
Regularly monitor the Net Asset Value (NAV) and loan eligibility
Ensure pledged units are not linked to ongoing SIPs or redemption plans
Avoid long-term borrowing to reduce cumulative interest burden
Use loans for essential needs—avoid speculative investment usage
Why It Matters
As digital and non-traditional lending gains popularity, HDFC Bank's LAMF offers a smart way to maintain investment growth while accessing liquidity. It provides financial flexibility, particularly during volatile market phases.
Expert Advice
Charu Pahuja, CFP and Group Director at Wise Finserv, notes: 'Digital loans against mutual funds can be a smart short-term solution, but only when used with caution. Assess your repayment capacity and understand the associated risks.'
Disclaimer:
This article is intended for educational purposes. Always consult a certified financial advisor before taking credit. Loans come with risks, including high interest and potential market-related losses.
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