What is loan against mutual funds?

Most investors build mutual fund portfolios for long-term goals. When a short-term need for cash arises, selling units triggers exits, possible taxes, and interrupts compounding. Loan against mutual funds (LAMF) is a secured facility where you pledge eligible units to a regulated lender and borrow against their value — typically while remaining exposed to NAV growth on those units, subject to the lender’s terms.

LAMF in one line

It is a secured loan backed by mutual fund units as collateral, similar in concept to other loans against securities (shares, bonds). You receive a sanctioned limit or drawdown; you pay interest (often on utilised amounts); and when you repay, the pledge can be released.

Features you should know

• Collateral-backed rates: Because the loan is secured, annual interest is usually lower than typical unsecured personal loans — market quotes are often in a single-digit to low-teens band and vary by lender and profile.
• No separate physical asset: The mutual fund units themselves are the security.
• Digital journeys: Many programmes use RTA/depository data, so onboarding can be light on paperwork compared with traditional loans.
• Speed: Limit checks and disbursement may complete within hours to a couple of business days, depending on the platform.
• Stay invested: You generally continue to earn returns on pledged units as per scheme rules, while access to redemption or switch may be restricted until the lien is lifted.

How does LAMF work?

1. You hold eligible open-ended mutual funds (equity, debt, or hybrid — subject to the lender’s approved list).
2. You apply with a bank or NBFC and pledge specific units. The lender marks a lien: a legal flag that prevents redemption or transfer of those units until the facility is settled or adjusted.
3. The lender offers an amount based on LTV (loan-to-value) — commonly roughly 50–80% of the marked-to-market value, depending on fund category and internal policy.
4. After pledge confirmation, funds are credited per the product’s drawdown rules.
5. You service interest (and principal per the product); on full repayment, the lien is released and you regain normal control of the units.

What is lien marking?

A lien is the lender’s security interest in your pledged units. While the lien is active, you usually cannot redeem or switch those units. Dividend or IDCW options, if any, still follow scheme rules and the lender’s documentation. After closure of the loan in line with terms, the lien is removed.

LAMF vs selling your mutual funds

LAMF vs personal loan (summary)

This guide is for general education. Product names, rates, LTV, eligibility, and charges are determined solely by your lending partner. Nothing here is an offer of credit.