In today’s dynamic financial landscape, investors often find themselves in a cash crunch. Whether it’s an unexpected expense or a lucrative opportunity, the need for instant liquidity is real.
But here’s the truth: Selling your mutual fund investments may not always be the smartest move.
Instead, savvy investors are choosing Loan Against Mutual Funds (LAMF) — a low-risk, tax-efficient way to borrow money without disrupting long-term wealth creation.
📘 What is Loan Against Mutual Funds?
Loan Against Mutual Funds (LAMF) is a secured loan, where you pledge your mutual fund units (equity or debt) as collateral. In return, the bank or NBFC lends you money — usually up to 70-80% of your fund’s NAV (Net Asset Value).
Your investments remain intact, and continue to grow — while you get the money you need.
✅ Key Benefits of LAMF:
| Feature | Benefit |
|---|---|
| 💰 No Need to Sell Investments | Avoid capital gains tax and exit loads |
| 📈 Portfolio Continues to Grow | Keep earning returns while using borrowed funds |
| 🏦 Low Interest Rates | 9%–12% p.a. (vs. 18%-24% on personal loans/credit cards) |
| ⚡ Quick Disbursal | 24–48 hours (some fintechs offer same-day) |
| 📉 No Foreclosure Charges | Repay anytime, partially or fully |
| 📊 Flexible Tenure | 3 to 36 months |
| 🔐 No Income Proof Needed | Loan is secured by MF units, not income |
📍 When to Use Loan Against Mutual Funds?
- Emergency (medical, home repairs)
- Short-term business capital
- Bridge funding for property deals
- Avoid breaking FD, gold, or stocks during market dips
- To maintain SIP/long-term equity strategy
🧠 Real-World Scenario: How LAMF Saves You ₹45,000+
Imagine this:
- You need ₹5 Lakhs urgently
- You have ₹10 Lakhs in mutual funds with 12% CAGR returns
Option 1: Selling Mutual Funds
- Exit Load (1%) = ₹10,000
- LTCG Tax (10% on ₹2L gains) = ₹20,000
- Loss of Compounding (₹10L @12% for 1 year) = ₹1.2 Lakhs
- Total Cost = ₹1.5 Lakhs+ (in lost tax + returns)
Option 2: Loan Against Mutual Fund
- Loan Amount: ₹5 Lakhs
- Interest @10% p.a. = ₹50,000 (if paid for 1 year)
- Portfolio still earns ₹1.2 Lakhs
✅ Net Profit = ₹70,000 (₹1.2L – ₹50K)
You use the money AND your wealth keeps growing. Win-win!
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📈 LAMF vs. Personal Loan vs. Selling MFs
| Criteria | LAMF | Personal Loan | Selling MFs |
|---|---|---|---|
| Interest Rate | 9–12% | 14–24% | NA |
| Loan Approval | Instant (against MF units) | Based on income/CIBIL | NA |
| Tax Implication | Nil | Nil | Capital Gains Tax |
| Portfolio Growth | Continues | Continues | Stops |
| Liquidity Speed | Fast | Medium | Slow (T+2 days) |
🏦 Where Can You Avail LAMF?
📲 Digital Fintech Platforms:
- Volt Money (Loan Against MFs starting at 9.5%)
- Navi
- Groww / Zerodha / Paytm Money (via NBFC tie-ups)
🏛 Banks & NBFCs:
- HDFC Bank
- ICICI Bank
- Axis Bank
- Bajaj Finserv
- Kotak Mahindra
- Federal Bank
Note: Most providers need your MF units to be in Demat form (NSDL/CDSL) or via CAMS/KFintech.
🔧 How to Apply for a Loan Against Mutual Funds (Step-by-Step):
- Check Eligibility: Usually, large-cap equity and debt funds are accepted.
- Convert to Demat (if not already): Use CAMS/KFintech to map folios.
- Apply Online or via Bank: Choose your lender based on rate & tenure.
- Pledge Mutual Fund Units: Through NSDL eSign or digitally via CAMS.
- Loan Disbursal: Amount gets credited to your bank within hours.
- Repay with Flexibility: Choose interest-only, partial EMI, or bullet payment.
💡 Pro Investor Tips to Save More:
- Use Interest-Only EMI: Pay just interest monthly & close principal when ready.
- Borrow During Market Correction: NAV is low → higher unit pledge for same loan.
- Take Short-Term Loans Only: 3–6 months loans are cheapest.
- Avoid Selling During Rally: Let your MFs compound at 12–15% while you pay only 9–10%.
- Tax Planning: Keep MF holding >3 years to enjoy LTCG benefit later.
🚫 Avoid These Mistakes:
- Borrowing >60% of portfolio value (NAV drop may cause margin call)
- Taking long tenure loans unnecessarily (increases interest burden)
- Ignoring portfolio quality (ensure it includes accepted fund houses & schemes)
📌 Summary: Who Should Use LAMF?
| Ideal For | Why |
|---|---|
| 💼 Business Owners | Easy working capital without financials |
| 🧑🎓 Students | Funds for foreign education while investments grow |
| 🏘 Home Buyers | Bridge finance for down payment |
| 💹 Investors | Don’t break long-term SIP plans during short-term cash need |
📢 Final Thought: “Don’t Liquidate. Leverage Smartly.”
Selling your mutual funds when in need can cost you more in the long run — in taxes, lost returns, and missed goals.
Instead, Loan Against Mutual Funds gives you cash-in-hand + continuous compounding.
“Let your money work for you — even when you need to spend it.”
📄 Disclaimer:
Investments in mutual funds are subject to market risk. Loans against mutual funds are secured loans but still carry interest obligations. Borrow responsibly. Past returns are illustrative and not guaranteed. Speak to a certified financial advisor for personalized guidance.