Ever been in a situation where you suddenly need money — maybe for a medical emergency, a wedding expense, or an urgent repair — but don’t want to sell your investments?
You’re not alone. Many investors face this dilemma. Selling your mutual funds might seem like the quickest solution, but it could also mean losing future returns and paying unnecessary taxes.
That’s where a Loan Against Mutual Funds (LAMF) can come to your rescue. It’s a smart way to access funds without touching your long-term investments. And here’s the best part — a good CIBIL score can make the entire process faster and cheaper!
💡 What Is a Loan Against Mutual Funds?
A Loan Against Mutual Funds (often called LAMF) lets you borrow money by using your mutual fund investments as collateral.
In simple terms, you’re not selling your funds — you’re just pledging them to a bank or financial institution. You continue to own the units and earn returns on them while the bank gives you a loan based on their value.
Sounds good, right? Let’s break it down.
🧭 How Does a Loan Against Mutual Funds Work?
Here’s how the process generally works:
1. The Loan Amount Depends on Your Fund Value
Banks calculate the loan amount based on your mutual fund’s Net Asset Value (NAV) and the fund type.
Typically, lenders offer:
- 50–60% of the value for equity mutual funds
- 80–90% for debt mutual funds
So if your CIBIL score is strong, you can often negotiate for a higher limit or lower interest rate.
2. Your Investments Keep Earning for You
Even after you pledge your mutual funds, they stay invested in the market. That means you continue to enjoy potential market gains while meeting your cash needs.
3. Interest Rates Are Lower Than Personal Loans
Since your mutual funds act as collateral, banks face lower risk — and that translates into lower interest rates for you.
This is why loans against mutual funds are generally cheaper than personal loans.
🌟 Benefits of Taking a Loan Against Mutual Funds
Let’s look at why this option makes sense for smart investors:
1. You Don’t Have to Sell Your Investments
You can borrow money while keeping your portfolio intact.
No need to redeem your funds or miss out on future growth. Plus, you avoid capital gains tax that usually comes with selling.
2. Fast and Hassle-Free Approval
Since the loan is secured, approval is much faster compared to personal loans. Most lenders approve and disburse funds within a few days — sometimes within 24–48 hours if your CIBIL score is healthy.
3. Tax-Efficient Option
When you take a loan instead of redeeming your funds, you don’t trigger any tax liability. That’s one less thing to worry about!
📋 Eligibility Criteria
To apply for a loan against mutual funds, here’s what you need:
- You must be an Indian citizen
- Your age should be between 18 and 90 years
- The minimum loan amount can range from ₹25,000 to ₹1,00,000 (varies by lender)
- You should have a good CIBIL score (preferably 700 and above) to enjoy faster approval and lower interest rates
🪜 Step-by-Step Guide to Apply for Loan Against Mutual Funds
Step 1: Check Your Fund Value
Start by checking your mutual fund’s current NAV and whether it’s eligible for pledging.
Most banks accept both equity and debt mutual funds.
Step 2: Compare Lenders
Don’t rush! Compare different banks and NBFCs.
Look at their interest rates, loan-to-value ratio, and repayment flexibility.
Step 3: Keep Your Documents Ready
You’ll typically need:
- Mutual fund statement
- PAN and Aadhaar card (for ID proof)
- Address proof (utility bill, rent agreement, etc.)
Step 4: Apply Online or Offline
Most banks allow online applications through their portals. You can also visit a branch if you prefer a personal touch.
Step 5: Loan Approval and Disbursal
Once your documents are verified and funds are pledged, the loan amount is usually disbursed directly to your bank account in just a few days.
Pro Tip: Maintain a good CIBIL score to improve your chances of getting the lowest interest rate and the highest possible loan amount.
📂 Documents Required
While the list varies slightly from lender to lender, here are the standard documents you’ll need:
- Mutual fund ownership confirmation
- Identity proof (PAN, Aadhaar)
- Address proof
💰 Interest Rates & Charges (as of May 2024)
| Bank | Interest Rate (p.a.) |
|---|---|
| HDFC Bank | From 7.10% |
| SBI | From 8.50% |
| Kotak Mahindra Bank | From 8.50% |
| Mirae Asset Finance | From 9.50% |
| Bajaj Finance | Up to 20% |
👉 Always check the lender’s official website for the latest rates before applying.
⚖️ Loan Against Mutual Funds vs Personal Loan
| Feature | Loan Against Mutual Funds | Personal Loan |
|---|---|---|
| Interest Rate | Lower, since it’s secured | Higher, as it’s unsecured |
| Loan Amount | Based on NAV of your funds | Based on income & CIBIL score |
| Approval Time | Quick (1–2 days) | Longer (up to a week) |
| Documents Required | Minimal | Extensive |
| Repayment | Flexible, can pay only interest monthly | Fixed EMIs (principal + interest) |
🔍 Why Your CIBIL Score Matters
Your CIBIL score plays a major role in how easily you can get a loan against mutual funds — and at what rate.
Here’s how it helps:
- A CIBIL score above 750 increases your chances of instant approval
- You can get lower interest rates and better terms
- It reflects your repayment discipline, helping you build trust with lenders
If your score is low, it’s smart to improve it before applying. Pay EMIs on time, reduce credit card balances, and avoid multiple loan inquiries.
🏁 Final Thoughts
A Loan Against Mutual Funds is one of the smartest ways to get quick funds without disturbing your investments.
You stay invested, enjoy market growth, avoid taxes, and get money when you need it most.
Just remember — a strong CIBIL score can make the whole process smoother, faster, and much more affordable. So, maintain a healthy credit score and use this option wisely for your short-term financial needs.
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