Loan Against Mutual Funds

  • Updated on: 29 Dec 2023
  • Published on: 29 May 2023
Loan Against Mutual Funds

Secured loans, like a loan against mutual funds, often have lower interest rates. Choosing this lending option has twin benefits. One, you get to enjoy the loan for your desired purpose. Second, your investments continue to accrue interest undisturbed.

Considering these perks, you may wonder, ‘How can I get a loan against a mutual fund?’. Read on to find out.

What is a Loan Against Mutual Funds?

Loans against mutual funds (MF) are credit facilities that offer funds when you pledge your mutual fund units as collateral. The bank holds your securities until the end of your loan repayment tenure. While you can continue to earn returns on your MF investments, you can’t sell these units until you repay the loan in its entirety. 

Online Application and Overdraft Facility

Opting for loans against mutual fund investments is easier than ever before. Thanks to the online application process offered by most lenders, you can get this loan from the comfort of your home.

In most cases, you can simply apply for a secured loan and pledge your investments as security. In some cases, you may even be able to avail the overdraft facility. It is a pre-approved credit arrangement allowing you to withdraw more than what you have in your bank account by pledging your assets as collateral. The lender extends a line of credit, charging interest on the sanction you utilise.

Loan Against Mutual Funds: Interest Rate

Lenders offer lower interest rates on loans backed by collateral. As such, the interest rate on such loans is lower, making it better than unsecured loans. 

Moreover, you get to enjoy a continuous flow of yield on your investments with these loans. Your assets are safe and your returns are unaffected throughout the loan repayment. 

Loan Against Mutual Funds: Eligibility Criteria

Most lenders have different eligibility criteria. However, there are some common requirements to get this loan. For instance, to enjoy this loan, you must qualify as any one of the following entities:

  • Individual Resident Investor
  • Non-Resident Indians (NRIs)
  • Hindu Undivided Family (HUF) 
  • Firm, Trust or Company

The lender decides on your loan amount, tenure and interest rate based on various factors, including:

  • Quantum of mutual funds’ holdings
  • Credit score
  • Repayment history 

Loan Amount Against Mutual Funds: Maximum Limit 

The amount of loan depends on the following factors:

  • The type of mutual funds you have invested in
  • The lender from which you avail the loan 

Banks provide a loan sanction from 50% to 60% of your equity holdings. On the other hand, you can get up to 80% to 85% of the net asset value (NAV) on your debt funds.  

Lenders also set an upper limit on these loans. For instance, some lenders have set a limit of ₹10 crores that you can get as a loan against mutual funds. However, this limit can vary depending on the lender’s policy. 

In case a secured loan isn’t accessible to you, you can always opt for the Fibe Instant Personal Loan. You can get funds up to ₹5 lakhs online at affordable rates. Simply download the Fibe Instant Loan App or visit the official website to get started. 

FAQs on Loans Against Mutual Funds

When will I receive the funds after applying for a loan against mutual funds?

While it depends on the lender, some of them disburse funds within 24 hours of your loan request getting approved.

Is a loan against mutual funds a good idea?

Yes. The cost of borrowing a loan is lower compared to personal loans. Moreover, during the loan term, your earnings from the mutual fund investments remain unaffected.

What is the interest rate for loans against mutual funds?

The interest rate varies between 8% to 10% p.a., depending on the lender.

How much loan can I get against a mutual fund?

You can get a loan amount of about 50% to 60% of the market price of your equities. For debt securities, banks generally provide a loan amounting to 80% to 85% of its value.

What are the advantages of opting for loans against mutual funds? 

Here are some pros you must be aware of:

  • Your mutual funds will remain invested in the market and you will continue to earn returns unless you fail to repay the loan  
  • These loans also provide lower interest rates as compared to unsecured loans

It is one of the ideal options if you want to enjoy instant liquidity


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