What Is a Loan Against Mutual Funds?
A Loan Against Mutual Funds (LAMF) is a secured loan provided by banks and NBFCs where you pledge your mutual fund units as security. Instead of selling your investments, you can borrow up to 70%–80% of your fund value instantly.
This helps you meet emergencies without disturbing your long-term wealth creation.
How Does Loan Against Mutual Funds Interest Rate Work?
The loan against mutual funds interest rate depends on the type of mutual fund, your profile, and lender policies. Usually, interest rates are lower compared to personal loans because lenders already have security in the form of your mutual fund units.
Most lenders charge interest only on the amount you withdraw, not the entire sanctioned limit.
Key Features
- No need to sell your mutual funds
- Lower interest compared to unsecured loans
- Works like an overdraft for flexible usage
- Interest charged only on withdrawn amount
- Quick approval and minimal documents
Benefits of Loan Against Mutual Funds
- Preserves your investment: You continue earning returns on your mutual funds.
- Lower cost: Cheaper than personal loans or credit card advances.
- Flexible repayment: No fixed EMI; you can repay anytime.
- High eligibility: Both debt and equity mutual funds can be pledged.
- Safe & secure: Units are only temporarily marked as lien, not sold.
Eligibility Criteria
- You must be an individual investor
- Mutual funds must be in demat or folio form
- KYC and PAN must be updated
- Minimum investment requirement depending on lender
- Clean credit history preferred
- Documents Required
- PAN card
- KYC documents
- Latest copyright
- Mutual fund statement
- Basic application form
Factors Affecting the Interest Rate
- Type of mutual fund (equity or debt)
- Total value of your MF portfolio
- Lender’s policy
- Credit score
- Loan amount
- Market risk levels
Why Choose Loan Against Mutual Funds Over Personal Loan?
- Lower interest
- More flexibility
- Faster approval
- No need for salary slips or income proofs
- You don’t lose your investment growth
Conclusion
If you need quick funds without selling your investments, taking a loan against your mutual funds is a practical and smart financial choice. It gives you flexibility, lower cost, and fast access to money. Always compare lenders and understand the loan against mutual funds interest rate structure before applying. This will help you choose the best deal while keeping your investments safe and growing.
FAQs
1. What is the interest rate for a loan against mutual funds?
It usually ranges from 8% to 16% depending on the lender and type of fund.
2. Do I need to sell my mutual funds for this loan?
No. Your units are only pledged; they continue to earn returns.
3. Can I repay the loan anytime?
Yes. There is no fixed EMI; you can repay partially or fully as per your convenience.
4. Is CIBIL score important?
Yes, a good score helps you get a lower interest rate.
5. What is the maximum loan amount I can get?
You can get up to 70%–80% of your mutual fund value, depending on the lender.