Loan Against Mutual Funds

Loan Against Mutual Funds (LAMF): The 6 Simple Steps to Financial Flexibility

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Imagine you’re planning a long-awaited family vacation, and just as you’re about to book those tickets, an unexpected medical expense pops up. Or picture this: you’ve spotted a golden investment opportunity that’s too good to miss, but your funds are tied up elsewhere. In such moments, the ability to access quick funds can be a game-changer. It is where Loan Against Mutual Funds (LAMF) swoops in as your financial superhero, ready to save the day. In this comprehensive guide, we will dive into the world of LAMF, exploring its features, benefits, application process, and everything you need to know to make savvy financial decisions.

What is a Loan Against Mutual Funds?

Understanding the Basics of LAMF

Loan Against Mutual Funds (LAMF) is a financial solution that lets you create an overdraft facility using your mutual fund units as collateral. You can conveniently lienmark your funds digitally and access the funds you need. Unlike conventional loans, LAMF offers an overdraft facility that allows you to use the funds as required without incurring additional charges. The interest is charged only on the amount you utilize and the duration you use the funds.

Using Mutual Funds as Collateral

Loan Against Mutual Funds (LAMF) allows your mutual funds to pull double duty. You can choose from various approved mutual funds from different asset management companies (AMCs) in India and use them as collateral. Pick those registered with CAMS and KFintech (formerly known as KARVY), Registrars & Transfer Agents (RTAs) to lien mark your funds. Loan Against Mutual Funds (LAMF) is an intelligent option for addressing short or medium-term financial needs without saying farewell to your investments.

Features & Benefits of LAMF

Fast and Convenient Loan Processing

Loan Against Mutual Funds (LAMF) offers a hassle-free experience, where you can complete your application within minutes and receive an overdraft limit almost instantly. No more waiting, just swift action!

Zero Foreclosure Charges

Flexibility to the max. Loan Against Mutual Funds (LAMF) allows you to repay your outstanding balance early without any foreclosure charges. You’re in control of your financial destiny and can make payments whenever you please.

Instant Disbursal

You’ve been approved, and the funds you need are credited directly to your bank account on the same day. Loan Against Mutual Funds (LAMF) is all about lightning-fast responses when you need them most.

Diverse List of Approved Securities

You can pick a vast list of approved mutual funds from different AMCs in India. The options are abundant, ensuring you can secure your loan with the assets that make the most sense.

Seamless 100% Digital Process

No more jumping through hoops. You can complete the entire journey online from your mobile device without physical document submission. It’s finance at your fingertips!

Retain Ownership of Your Mutual Funds

While you use your mutual funds as collateral, you continue to retain ownership and enjoy all their benefits. It’s a win-win.

Attractive Interest Rate

The interest rates are as attractive as a summer vacation deal. Starting at 9% per annum (on the utilized amount) with a flexible payment option, Loan Against Mutual Funds (LAMF) ensures you’re not paying a penny more than necessary.

Flexible Loan Tenure

The overdraft limit against your mutual funds has a fixed tenure of 12 months and is renewed after that, so you can customize your borrowing to match your unique financial goals.

Unlocking Higher Loan Value

Depending on the type of mutual funds you pledge, you can access a higher limit, up to Rs 1 crore for equity mutual funds (45% Loan to Value) and up to Rs 3 crore for debt mutual funds (80% Loan to Value).

Manage Funds with Easy Repayment

You’re required to service the interest amount accrued monthly based on utilization. It ensures your financial commitments align with your financial needs.

How to Avail Loan Against Mutual Funds (LAMF)?

The 6 Simple Steps to Financial Flexibility

1Download the app or apply via the web: Begin your journey by downloading the mobile app or using the website.
2Select the type of mutual funds: Decide whether you want to pledge equity or debt mutual funds, depending on your financial goals.
3Complete one-time KYC registration involves providing your PAN and Aadhaar details, which can be fetched directly from Digilocker if your Aadhaar is linked to your mobile number.
4Lien mark at RTA’s (CAMS/KFintech) portal: Verify your mutual fund holdings through a One-Time Password (OTP) authentication.
5Verify your bank account online: This is done via e-mandate, streamlining the process.
6Read and sign the loan agreement online: Your overdraft facility is ready for use once you complete these steps.

Loan Details & Charges

Maximum and Minimum Loan Amounts

Loan TypeLoan AmountLoan to Value (LTV)
Loan Against Equity Mutual FundsUp to ₹1,00,00,00045%
Loan Against Debt Mutual FundsUp to ₹3,00,00,00080%
Minimum Loan Amount₹10,000N/A

Transparent Loan Tenure

The loan against mutual funds has a fixed tenure of 12 months, renewable after that.

Understanding Processing Fees

For your convenience, a fixed processing fee is charged.

Penal Interest Rate

In case of default, a penal interest rate is applicable.

Minimum Withdrawal Amount

While there’s no limit on the number of withdrawals, the minimum withdrawal amount is ₹1,000.

Stamp Duty and Foreclosure Charges

Fee TypeAmount
Stamp Duty₹500
Foreclosure ChargesZero foreclosure charges.
Bounce Charges₹500 + taxes as applicable
Annual Renewal Charges₹999*
Bank Mandate Swap Charges₹500*
Top-Up/Security Withdrawal Charges₹500*
Security Invocation Charges₹2,000*
Collection Charges₹5,000*
Legal Charges₹5,000*
Annual Percentage Rate (APR)9% to 24% per annum

Let’s Break It Down with an Example

Let’s crunch some numbers to put things into perspective.

Scenario: A customer takes a loan of ₹50,000 for 12 months at an annual interest rate of 9% APR.

  • Monthly interest for 12 months: ₹375 per month
  • Total loan payment over 12 months: ₹54,500 (including principal and interest)
  • Total Cost of Loan: Interest Amount + Processing Fees + Stamp Duty = ₹4,500 + ₹999 + ₹500 = ₹5,999.

Pros and Cons of Loan Against Mutual Funds

Before we embark on our journey into the world of Loan Against Mutual Funds (LAMF), let’s weigh the pros and cons. This financial tool can be a double-edged sword, and understanding its advantages and disadvantages is crucial.

Pros of Loan Against Mutual Funds

1. Immediate Access to Funds: LAMF offers a quick and hassle-free way to access funds when needed. It’s a financial lifesaver during emergencies or opportunities that can’t be missed.

2. Retain Investment Potential: Unlike selling your mutual fund units, opting for a loan allows you to retain your investment portfolio. You continue to benefit from potential market gains and dividend income.

3. Competitive Interest Rates: LAMF typically offers lower interest rates than unsecured loans like personal or credit cards, making it a cost-effective option.

4. No Liquidation Required: You don’t need to liquidate your mutual fund units, maintaining your long-term investment strategy. It’s like having your cake and eating it too.

5. Flexible Usage: Loan Against Mutual Funds (LAMF) can be used for various financial needs, from debt consolidation to a dream vacation. You have the flexibility to choose how to utilize the funds.

Cons of Loan Against Mutual Funds

1. Impact on Investment Returns: While you retain ownership of your mutual fund units, they act as collateral for the loan. It can limit your investment’s growth potential.

2. Fluctuations in Pledged Mutual Funds: The value of your pledged mutual funds can fluctuate with market conditions. If their value drops significantly, you might need to pledge more assets or repay part of the loan.

3. Risk of Losing Assets: Defaulting on loan repayments can have severe consequences, including losing your mutual fund holdings, which were pledged as collateral.

4. Costly Defaulting: Defaulting on LAMF can lead to extra charges and legal actions, potentially causing financial stress.

5. Not Suitable for Everyone: LAMF is not the right choice. The decision to opt for it should be based on individual financial goals and circumstances.

Now that we’ve assessed the pros and cons, let’s dive deeper into who should and shouldn’t opt for LAMF.

  1. Accessibility and Convenience:
Immediate Access to FundsImpact on Investment Returns
Convenient and quick loan processImpact on investment returns
No need to liquidate investmentsDefaulting on loan repayments can have severe consequences.
  1. Investment Considerations:
Retain Investment PotentialFluctuations in Pledged Mutual Funds
Retain exposure to potential market gains.Fluctuations in the value of pledged mutual funds
  1. Financial Flexibility:
Flexible UsageNot Suitable for Everyone
Flexible borrowing optionIt can be used for various financial needs.
  1. Risk Factors:
Competitive Interest RatesRisk of Losing Assets
Competitive interest ratesPossibility of losing mutual fund holdings
No Liquidation RequiredCostly Defaulting
Retain Investment PotentialRisk of Losing Assets

Who Should Opt for Loan Against Mutual Funds and Who Shouldn’t

Who Should Opt for Loan Against Mutual Funds (LAMF)

  1. Individuals with Short-Term Financial Needs: LAMF is ideal for individuals with short-term financial requirements, such as medical emergencies, home renovations, or educational expenses.
  2. Those with a Secure Repayment Plan: If you have a well-thought-out plan to repay the loan and manage the monthly interest, LAMF can be a valuable financial tool.
  3. Investors with a Diversified Portfolio: Those with a diversified investment portfolio can consider LAMF without risking their entire financial future.
Who Should Opt for LAMFWho Shouldn’t Opt for LAMF
Individuals with Short-Term Financial NeedsLong-Term Investors
Those with a Secure Repayment PlanIndividuals Facing Financial Uncertainty
Investors with a Diversified PortfolioRisk-Averse Investors

Who Shouldn’t Opt for Loan Against Mutual Funds (LAMF)

  1. Long-Term Investors: If you have a long-term investment horizon and believe in the power of compounding, LAMF may not be the best choice, as it can hamper your investments’ growth.
  2. Individuals Facing Financial Uncertainty: If you are in a situation where you’re uncertain about your financial future or ability to make timely repayments, LAMF may lead to more harm than good.
  3. Risk-Averse Investors: If you’re risk-averse and anxious about losing your mutual fund units due to market volatility, exploring other financing options is better.

When to Opt for Loan Against Mutual Funds and When to Avoid It

When to Opt for Loan Against Mutual Funds (LAMF)

  1. Emergencies: When faced with unexpected medical expenses, home repairs, or other emergencies, LAMF can provide the necessary financial support.
  2. Short-Term Investments: LAMF can be a strategic financial move for short-term investments or opportunities. You can seize the opportunity without disturbing your long-term portfolio.
  3. Debt Consolidation: If you have high-interest debts, using LAMF to consolidate and pay off those debts can save you money in the long run.
When to Opt for LAMFWhen to Avoid LAMF
EmergenciesLong-Term Financial Goals
Short-Term InvestmentsUncertain Repayment Capacity
Debt ConsolidationMarket Uncertainty

When to Avoid Loan Against Mutual Funds (LAMF)

  1. Long-Term Financial Goals: If you have long-term financial goals like retirement planning or wealth creation, it’s wise to steer clear of Loan Against Mutual Funds (LAMF), as it can hinder your economic progress.
  2. Uncertain Repayment Capacity: When unsure about your ability to make regular repayments, it’s best not to opt for Loan Against Mutual Funds (LAMF) to prevent potential financial stress.
  3. Market Uncertainty: During times of high market volatility, relying on Loan Against Mutual Funds (LAMF) is risky, as the fluctuation in the value of pledged assets can put your investments at risk.

The Impact of LAMF on Personal Finance

The decision to opt for Loan Against Mutual Funds (LAMF) can significantly impact your finances. Let’s explore how:

Positive Impact

  • Immediate Liquidity: Loan Against Mutual Funds (LAMF) offers immediate liquidity to address financial needs, allowing you to grab opportunities and mitigate emergencies without depleting your savings.
  • Financial Consolidation: Using Loan Against Mutual Funds (LAMF) to pay off high-interest debts can lead to significant interest savings and debt reduction, ultimately improving your financial health.

Negative Impact

  • Opportunity Cost: Pledging mutual fund units means missing out on potential market gains. The longer the funds are pledged, the higher the opportunity cost.
  • Risk of Default: Defaulting on loan repayments can lead to losing your mutual fund holdings, affecting your financial stability and future goals.
Positive ImpactNegative Impact
Immediate LiquidityOpportunity Cost
Financial ConsolidationRisk of Default

Market Fluctuations and Loan-to-Value (LTV)

One crucial factor in Loan Against Mutual Funds (LAMF) is the Loan-to-Value (LTV) ratio, which determines the maximum amount you can borrow based on the value of your pledged mutual funds. However, market fluctuations and volatility can impact the LTV significantly.

Example: Let’s say you pledge mutual funds worth ₹1,00,000 with an LTV of 50%. During market stability, you can borrow up to ₹50,000. However, if the market experiences a sharp downturn, and the value of your pledged assets drops to ₹80,000, your borrowing capacity is reduced to ₹40,000 (50% of ₹80,000).

How to Tame Market Fluctuations in Your Best Interest?

To minimize the impact of market volatility on your LTV, consider these strategies:

  1. Diversify Your Portfolio: A well-diversified portfolio is less susceptible to sharp market downturns.
  2. Regularly Monitor Your Portfolio: Keep a close eye on your mutual fund investments to make timely adjustments.
  3. Stay Informed: Be aware of the market trends and global economic factors that can affect your investments.
  4. Plan Loan Repayments Carefully: Ensure your repayment plan aligns with market conditions to minimize the risk of default.
Market StabilityMarket Downturn
Pledge mutual funds worth ₹1,00,000Pledge mutual funds worth ₹1,00,000
LTV of 50%LTV of 50%
Borrow up to ₹50,000Borrow reduced to ₹40,000


In conclusion, Loan Against Mutual Funds is your financial best friend, offering flexibility, convenience, and attractive interest rates. It lets you meet your financial needs without disrupting your long-term investment goals. So, are you ready to access the funds you need when you need them? Dive into the world of Loan Against Mutual Funds (LAMF) and unlock a realm of financial possibilities!

Frequently Asked Questions (FAQs) – Loan Against Mutual Funds (LAMF)

1. What is a Loan Against Mutual Funds?

A Loan Against Mutual Funds is a secured loan where borrowers pledge their mutual fund units as collateral to secure a loan from banks or Non-Banking Financial Companies (NBFCs). It is a convenient short-term credit solution that caters to urgent financial needs without liquidating mutual fund investments.

2. What are the interest rates and other charges applicable for Loan Against Mutual Funds?

Mutual Funds offers an attractive interest rate of 9% p.a. Certain charges like processing fees and stamp duty apply. Please refer to the “Charges” section in our Terms & Conditions for comprehensive details.

3. Who is eligible for a Loan Against Mutual Funds?

Indian citizens aged 18 to 75 years with a credit score of 500 or more or new to credit can avail of a loan against mutual funds. A single PAN card can have up to 2 loan accounts, one each against equity and debt mutual funds.

4. Who is not eligible for a Loan Against Mutual Funds?

Corporates, HUFs, and NRIs cannot avail Loans Against Mutual Funds.

5. Which securities are covered in the approved Loans Against Mutual Funds list?

The security list is reviewed monthly, and a large basket of mutual funds is covered, including open-ended schemes of all AMCs with a scheme AUM of INR 20 crores or more.

6. What types of securities are not considered in the approved Loans Against Mutual Funds list?

ELSS, Children Funds, Retirement Funds, Franklin Templeton, and Navi Mutual Fund schemes are not currently considered for loans. Mutual Funds held under joint holding (Except Either or Survivor) are also not eligible for pledging.

7. How does the lien/pledge process work? How long does it take to create a lien?

The pledging process with mutual funds RTAs – KFintech & CAMS, is digitally executed and usually takes around 15 minutes (subject to all documents being submitted online).

8. Who owns the pledged securities?

The ownership of the securities remains with the holder (the Borrower). They continue to receive potential capital appreciation and dividend income. However, the securities cannot be sold while they are pledged.

9. Can I release a partial lien on my mutual fund units?

You can digitally release a partial lien using the Mutual Funds app/web.

10. What are the minimum and maximum loan amounts provided?

For loans against equity mutual funds:
1. Minimum loan amount: INR 10,000
2. Maximum loan amount: INR 1 crore
3. Loan-to-Value (LTV): 45%
For loans against debt mutual funds:
1. Minimum loan amount: INR 10,000
2. Maximum loan amount: INR 3 crore
3. Loan-to-Value (LTV): 80%

11. Can I make withdrawals in tranches?

Yes, you can make withdrawals in tranches of INR 50 lakhs. Once the “Withdrawal Request” status is completed, you can process the next tranche.

12. What is the disbursal window for loans?

The disbursal window is from 8:00 am to 5:00 pm, except on bank holidays. Withdrawal requests will be accepted, but requests will be processed the next day. Please note that withdrawals can happen on bank holidays with conditions.

13. What bank mandates should I be aware of?

Ensure you can access net banking and/or debit cards for the bank account mentioned while creating the bank mandate. Most central banks are part of the e-mandate, but cooperative banks are not included.

14. What is a Loan Against Mutual Funds?

Loans against mutual funds (LAMF) is a secured loan option where you can pledge your mutual fund units as collateral for loans from financial institutions. Hence, you do not need to redeem your mutual fund units to raise funds, so your investment can continue to generate potential returns.

15. What are the eligibility criteria to apply for a Loan Against Mutual Funds?

This facility is currently available for customers maintaining approved shares depositary with NSDL. To avail of a loan on mutual funds, you should:
1. Be a resident Indian. Non-resident Indians (NRIs) are currently not eligible for this loan.
2. Be between 18 and 75 years of age.
3. Have a valid PAN & Aadhaar Card.
4. Have a valid email ID and mobile number.
5. Have a valid bank account with a net banking facility.

16. What is a loan’s interest rate against mutual funds? And how is it calculated?

The loan’s interest rate against mutual funds is 9% p.a. The interest is calculated daily on the utilized amount and will be due on the 1st working day of the following month. The same will be debited from your Bank Account via NACH mandate on the 3rd working day of the next month. The Borrower needs to service the same every month. Please note that interest payments cannot be made using the Pay Now function and will only be adjusted via the NACH mandate.

17. How to avail of a Loan Against Mutual Funds?

Step-1: Download the app or sign up & register yourself.
Step-2: Complete a one-time KYC registration with PAN & Aadhaar details (Details can be fetched directly from Digilocker if your Aadhar is linked with your mobile number).
Step-3: Pledge at DP’s (NSDL) portal through One-Time Password (OTP) authentication.
Step-4: Verify your bank account online via e-mandate.

18. What are the operational hours for a Loan on Mutual Funds?

Since the loan against mutual funds is an entirely digital and paperless process, your LAMF limit will be approved and functional on the same day. You can raise funds withdrawal requests or make repayments 24/7 on all days of the week. Any withdrawal request extended till 5 pm will be processed on the same day within four working hours. Requests raised after 5 pm will be processed the next working day.

19. What is the Loan to Value (LTV) on Mutual Funds?

The LTV is 45% of the value of equity mutual funds and up to 80% of the value of debt mutual funds.

20. What are the minimum and the maximum amounts a customer can avail through Loan Against Mutual Funds?

The minimum amount is Rs 10,000, and the maximum can go up to Rs 1 crore for equity mutual funds and Rs. 3 crore for debt mutual funds.


This blog is solely for educational purposes. The securities/investments quoted here are not recommendatory. This is not an investment advisory. The blog is for information purposes only. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.

Past performance is not indicative of future returns. Please consider your specific investment requirements, risk tolerance, goal, time frame, risk and reward balance, and the cost associated with the investment before choosing a fund or designing a portfolio that suits your needs. The performance and returns of any investment portfolio can neither be predicted nor guaranteed. 

The information provided in this article is solely the author/advertisers’ opinion and not investment advice – it is provided for educational purposes only. Using this, you agree that the information does not constitute any investment or financial instructions by Ace Equity Research and the team. Anyone wishing to invest should seek their own independent financial or professional advice. Do conduct your research along with registered financial advisors before making any investment decisions. Ace Equity Research and the team are not accountable for the investment views provided in the article.

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