Loans Against Mutual Funds: A Simple Guide for Investors
Financial emergencies do not come with a disclaimer. They arrive much like a monsoon downpour—unexpected, intense, and leaving you scrambling for cover.
Now, in those moments, most of us tend to liquidate whatever investments we can get our hands on. Mutual funds? Liquidated. Long-term SIPs? Cashed in. But what if you could access the funds you need without having to exit your investments?
That’s where Loan Against Securities (LAS) comes into the picture. This tool is a type of loan where a borrower pledges their securities, such as stocks, mutual funds, bonds, gold, and other financial assets, as collateral to obtain a loan from a lender.
One such category is Loans Against Mutual Funds (LAMF)—a low-drama, high-utility financial tool that allows you to tap into the value of your mutual fund portfolio without selling a single unit. It is a powerful tool that offers you the financial flexibility you deserve, setting itself apart as an exceptional alternative to traditional personal loans.
First, the Basics: What is a LAMF?
Loan Against Mutual Funds (LAMF) is a secured loan where you pledge your mutual fund units as collateral to borrow money from a bank or financial institution. Instead of redeeming your investments (which could disrupt your wealth-building journey and trigger taxes), you simply “lien-mark” your units to a lender. The lender then offers you a credit limit, often up to 90% of the Net Asset Value (NAV) of the pledged mutual fund units.
You can avail a loan against mutual funds from ₹25,000 to ₹5 crore.
Key Features of LAMF
Quick Disbursal: Funds are credited to your bank account within 24 hours, sometimes on the same day.
Minimal Documentation: The process is largely digital, requiring just a few documents and your demat account details.
Flexible Withdrawal and Repayment: You can withdraw money as needed and repay at your convenience. The default loan tenure is 36 months. It is essential to note that a mutual fund withdrawal can only occur once the loan has been repaid.
Interest Only on Utilised Amount: Interest is charged only on the amount you use, not the entire sanctioned limit.
No Need to Sell Investments: Your mutual funds remain invested, so you continue to earn returns while using them as collateral.
Loan-to-Value (LTV) Ratio: At smallcase, you can avail of a loan of up to 45% of the Loan-to-Value (LTV) against your equity mutual funds and 75% LTV against your debt mutual funds.
Use Cases of LAMF
Now, apart from the benefits, LAMF can be a versatile financial tool. It isn’t just about “getting a loan”—it’s about preserving your wealth while unlocking liquidity. Let’s take a look at some real-life financial scenarios where such a tool can help you create a secure future while addressing your short-term capital needs:
Medical Emergencies
A sudden hospitalisation or surgery that is not fully covered by insurance.
How LAMF Helps:
Quick disbursal and lower interest make it a better option than a personal loan or swiping your credit card. Your investments stay intact while you get funds within hours.
Education Fees
You or your child is admitted to a course with upfront fees, but your savings are tied up in Systematic Investment Plans (SIPs).
How LAMF Helps: Instead of redeeming funds (and triggering taxes or exit loads), consider pledging your mutual funds and paying the fee. Repay in EMIs or as a single lump sum payment at a later date.
Business or Freelance Capital
You’re a small business owner or freelancer who needs capital for expansion, inventory, or an urgent project.
How LAMF Helps: Access working capital without taking out a high-interest business loan. Additionally, the overdraft feature allows you to pay interest only on the amount you actually use.
Bridge Financing for a Home
You’re in the process of selling a property but need funds for the down payment on a new one.
How LAMF Helps: Instead of liquidating long-term investments at the wrong time, use LAMF as a bridge loan until your previous deal closes.
Dream Vacation or Big Ticket Purchase
Planning a luxury holiday to Europe?.
How LAMF Helps: You stay invested and let your portfolio grow while borrowing against it at a lower cost than most personal loans or buy now, pay later (BNPL) schemes.
NOTE: Use only if you’re confident about repayment. Remember, it’s still a loan.
What You Should Watch Out For
Market Volatility and Margin Calls: If the value of your pledged funds drops due to market fluctuations, the lender may ask you to top up your collateral or repay part of the loan.
Potential Liquidation: Failing to meet a margin call or repay the loan can result in the lender selling your mutual fund units.
Restricted Access: Pledged units can’t be redeemed or switched until the loan is repaid.
Interest Costs: While cheaper than unsecured loans, interest still accrues. If you don’t plan repayments well, it could eat into your returns.
What’s the Current Scenario in India?
LAMF demand has surged in India, particularly during volatile market conditions. As of early 2025, there is a 50% increase in enquiries for loans against mutual funds, according to news reports.
Meanwhile, the capital markets regulator, the Securities and Exchange Board of India (SEBI), issued its master circular in June 2024, which improved mutual fund transparency, making it easier for lenders to assess the quality of net asset value (NAV) and fund volatility.
These regulatory nudges make LAMFs more stable for both lenders and borrowers.
Final Take
LAMF is one way to handle short-term financial needs without killing your long-term goals. It gives you breathing space without forcing a sale. And in a volatile market, that’s gold.
Things to Remember
Thinking about borrowing against your mutual funds?
✅Check fund eligibility
✅ Compare interest rates
✅ Understand margin call policies
✅ Always have a repayment plan
Disclaimer: The information provided in this article is for informational purposes only and is not intended as financial, investment, or professional advice. Readers are encouraged to seek independent advice before acting on any information contained in this article. Smallcase Technologies Private Limited disclaims any responsibility for actions taken based on the content of this publication.