Loan Against Mutual Funds (LAMF) - Interests, Eligibility, How It Works, Pros and Cons
Last Updated: 02 June, 2025
4 min read
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When you're in urgent need of funds, be it for emergencies, education, wedding expenses or business needs, selling your mutual fund investments seems like the easiest solution.
But there's a smarter alternative many investors overlook which is Loan Against Mutual Funds (LAMF).
This is a financial option that allows you to access liquidity without breaking your long term investment strategy.
In this article, we'll cover what Loan Against Mutual Funds is, the solution to your reason for taking it, how it works, eligibility, does CIBIL score affects and interest rate comparison of companies providing LAMF.
What is a Loan Against Mutual Funds?
Loan Against Mutual Funds is a type of secured loan where you pledge your mutual fund units as collateral to borrow money from a bank or financial institution.
The loan amount depends on the type and value of the mutual funds:
For equity mutual funds, you can typically borrow up to 50% of the fund’s current market value.
For debt mutual funds, the loan-to-value (LTV) ratio is higher, up to 80%.
You still retain ownership of the mutual fund units, and they continue to earn returns, though you can’t redeem them until the loan is repaid.
Reasons to Consider Taking a Loan Against Mutual Funds?
Here are some common scenarios where taking a LAMF makes sense:
Emergency Funding: Quick access to cash without liquidating long-term investments.
Education or Medical Expenses: Lower interest rates than personal loans or credit cards.
Home Renovation or Wedding: Short-term goals that require immediate funding.
Business Needs: Raise capital while keeping your financial portfolio intact.
Market Timing: Avoid redeeming when markets are down and lock in losses.
Advantages and Disadvantages of LAMF
Advantages
No Need to Sell Investments: Keep your long-term compounding intact.
Lower Interest Rates: Generally cheaper than unsecured loans. (interest rate in the below sections)
Quick Processing: Many institutions offer instant or same-day disbursal.
Flexible Repayment: Interest-only EMIs or overdraft facilities available.
Disadvantages
Risk of Liquidation: Defaulting can lead to your pledged units being sold.
Market Fluctuations: If the mutual fund's NAV drops, the lender might ask for additional collateral.
Limited Loan Amount: The Loan is based on NAV, which may not suffice for very large needs.
How Does a Loan Against Mutual Funds Work?
Apply Online or Offline: Submit a loan application through your bank or NBFC.
Pledge Mutual Funds: Choose which mutual funds to pledge, which must be from approved AMCs.
Loan Sanction: Based on the fund value and LTV, the loan is approved.
Disbursal: The amount is transferred to your account, usually as an overdraft or term loan.
Repayment: Pay interest monthly; principal can be repaid later or at once.
Most institutions accept demat and non-demat (physical) fund holdings. Some may require converting them to demat for faster processing.
Am I Eligible for a Loan Against Mutual Funds?
To be eligible for LAMF:
You must be an Indian resident.
You should own mutual funds from approved AMCs (most top-tier ones are eligible).
KYC compliance is mandatory.
Minimum loan amounts may apply (usually ?10,000–?25,000).
Self-employed professionals, salaried individuals, and even NRIs (in some cases) can apply.
Will Taking a Loan Against Mutual Funds Affect My Credit Score?
Yes, LAMF impacts your credit score, just like any other loan:
If you repay on time, it can improve your credit profile.
Missing payments or defaulting can negatively impact your credit score and result in sale of pledged funds.
Though it's a secured loan, credit bureaus treat it like any other borrowing behavior.
Loan Against Mutual Funds Interest Rate Comparison
Here’s a table comparing the interest rates, processing fees, and LTV ratios for LAMF offered by popular lenders:
Lender | Interest Rate (p.a.) | Processing Fee | Loan-to-Value (LTV) | Highlights |
SBI | ~10.05% | ?1,000 flat | 50% (Equity), 75% (Debt) | Overdraft facility, annual renewal |
HDFC Bank | 8.5% – 15% | 1% or ?1,499 | 50% (Equity), 80% (Debt) | Fast digital processing |
ICICI Bank | 9% – 11% | 1% | 50% (Equity), 80% (Debt) | Paperless processing |
Axis Bank | 11.49% – 13.75% | 0.25% | Up to 85% | Higher LTV on select funds |
Kotak Mahindra Bank | 8% – 11% | 0.25% – 1% | 50% (Equity), 80% (Debt) | Flexible tenures |
Tata Capital | 8% – 20% | Up to 1% | 50% (Equity), 70% (Debt) | Loans up to ?20 crore |
Bajaj Finserv | 8% – 15% | Up to 4.72% | 50% (Equity), 80% (Debt) | High-value loans, flexible tenure |
Mirae Asset | 9% – 24% | ?999 + taxes | 45% (Equity), 80% (Debt) | 100% digital LAMF platform |
Volt Money | 9% – 11% | ?999 + GST | Not specified | Instant disbursal, online journey |
Abhiloans | 8% – 16% | 2% or ?1,000 (min) + GST | Not specified | Quick approval, competitive rates |
Geojit Credits | From 10.99% | Not specified | Up to 40% | No prepayment charges |
Conclusion
Loan Against Mutual Funds is a practical way to access liquidity while letting your investments continue to grow.
With competitive interest rates and minimal paperwork, it's an attractive alternative to traditional loans.
However, ensure you:
Borrow only what you can repay comfortably.
Track your pledged units and NAV movements.
Choose lenders based on a mix of interest rate, service quality, and flexibility.
Used responsibly, LAMF can be a cost-effective and investment-friendly borrowing option, whether you're facing an emergency or planning a big purchase.
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