Loan Against Mutual Funds (LAMF)
Here's how it works:
A Loan Against Mutual Funds (LAMF) is a secured loan where you can pledge your mutual fund units as collateral to access quick funds from a bank or financial institution without liquidating your investments. This facility helps you meet financial needs while your mutual funds continue to generate returns.- Loan Amount: The amount you can borrow is typically a percentage of the market value of the mutual funds you pledge. This is usually between 50% to 80% of the value, depending on the type of mutual funds and the lender's policies.
- Tenure: The loan tenure is flexible, and you can choose a repayment period that suits you, typically ranging from a few months to a few years.
- Risk: If you fail to repay the loan, the lender has the right to liquidate your pledged mutual fund units to recover the outstanding amount. This means there is a risk of losing your investments.
- Process: The process usually involves: Pledging your mutual fund units with the lender. Completing the loan application and documentation. The lender evaluates your eligibility and sanctions the loan.
Features of Loan Against Mutual Funds
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Collateral-Based Loan
Your mutual fund units are pledged as security, with loan eligibility typically ranging between 50%–80% of their market value, based on fund type and lender policies.
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Competitive Interest Rates
Lower than unsecured loans, typically 9%–15% per annum, depending on the lender and fund category.
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Flexible Loan Tenure
Ranges from 6 months to 5 years, allowing you to structure repayments as per your financial capacity.
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Quick Loan Disbursement
Faster processing and approvals compared to traditional secured loans.
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No Prepayment Charges
Most lenders do not impose penalties for early loan repayment.
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No Immediate Tax Implications
Your pledged mutual funds remain untaxed unless liquidated due to non-repayment.
Benefits of Loan Against Mutual Funds
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Access to Funds Without Selling Investments
Retain your long-term financial goals while addressing short-term liquidity needs.
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Lower Interest Rates
Since it is a secured loan, the interest rates are significantly lower than personal loans.
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Continued Investment Growth
Your pledged mutual funds remain invested and continue earning returns.
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Flexible Repayment Options
Choose between monthly EMIs or lump sum repayment as per your financial convenience.
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No Credit Score Dependency
Loan approval is based on mutual fund collateral rather than credit history.
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Hassle-Free Documentation
Minimal paperwork and online pledging make the process seamless.
Frequently Asked Questions
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You can borrow 50%–80% of the mutual fund’s NAV, depending on fund type and lender policy.
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Most lenders accept equity, debt, and hybrid funds, but specific restrictions may apply.
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Interest rates typically range from 9%–15% per annum, based on lender policies and mutual fund type
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Repayment is usually in monthly EMIs, but some lenders may offer lump sum repayment at the end of the tenure.
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The lender has the right to liquidate your pledged mutual fund units to recover the outstanding amount.
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No, your mutual funds remain invested unless liquidated for loan recovery due to non-repayment.
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Yes, provided that the SIP units are fully matured and available for pledging.
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No immediate tax is applicable unless the lender liquidates the pledged units, triggering capital gains tax.
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Loan processing is quick, and funds are typically disbursed within a few days, subject to documentation and verification.
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Yes, most lenders allow early loan closure without prepayment penalties.
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A Loan Against Mutual Funds is an effective financing solution for investors seeking liquidity while maintaining long-term investment growth. With competitive interest rates, quick disbursal, and flexible repayment options, it offers an excellent alternative to personal loans or selling investments.
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