Understand how loan against mutual funds works
Here is how the loan against securities mechanism works for mutual fund holders:
- You apply online and pledge mutual fund units as collateral.
- The lender places a lien (legal hold) on the units.
- Post verification, the approved loan amount is disbursed usually to your bank account.
- You repay through interest-only EMIs or full EMIs depending on the loan structure.
What is interesting is that your mutual funds continue to remain invested. You don’t lose out on potential market gains or dividend payouts (if applicable), even while using them to raise funds.
Example: Ravi, a 40-year-old marketing consultant, needed Rs. 3 lakh to fund his daughter’s admission abroad. Instead of redeeming his equity MFs, he pledged them and got a quick loan while his investments continued to grow during a market rally.
Gather the necessary documents
Applying for a loan on mutual funds is relatively hassle-free. However, keeping documents ready can help speed up the process.
Here is what you will typically need:
- KYC documents (Aadhaar, Passport, or Voter ID)
- PAN card (mandatory)
- CAS (Consolidated Account Statement) showing mutual fund holdings
- Recent photograph and digital signature, if required
Ensure all documents are updated and legible. In some cases, corporate applicants may need to furnish additional financials or board resolutions.
Submit the application
Once your documents are ready, visit the lender’s official site and head to the loan against mutual funds section. The application process is fully online, requiring just a few simple steps:
- Enter your personal and investment details
- Upload the required documents
- Authorise the lien creation digitally
- Choose the loan amount and tenure
- Submit the form and wait for approval
Most approvals happen quickly, and disbursal could take less than 24–48 hours in many cases.
Benefits of opting for loan against mutual funds
A loan against MF comes with several advantages that make it a preferred choice among investors:
- No need to sell your funds to access cash
- Quick processing and fast disbursal
- Low interest rates compared to unsecured loans
- Pay interest only on used amount (for overdraft facility)
- Retain potential gains from your MF portfolio
- Flexible repayment options
- No foreclosure or prepayment penalty in many cases
This makes it a highly cost-effective and strategic way to meet your financial needs.
When is a loan against MF a smart choice?
Here are real-life use cases where a loan on mutual funds makes more sense than redemption or personal loans:
- Medical emergencies or hospitalisation costs
- Last-minute travel bookings or visa requirements
- Child’s admission or tuition fees
- Repaying high-interest credit card debt
- Home repairs or temporary cash crunch in business
Instead of pulling out from long-term investments, you get to borrow against them often at better terms.
What to keep in mind before applying?
Here are a few practical tips:
- Review which fund types (equity/debt/hybrid) are accepted
- Use an online calculator to plan the EMI and tenure
- Always borrow within your repayment capacity
- Read the fine print—look for fees like processing or maintenance charges
- Monitor your fund performance to avoid margin calls (in rare cases)
Being mindful of these aspects can help you use this facility responsibly and effectively.
Conclusion
A loan against mutual funds gives you the best of both worlds: immediate liquidity and long-term wealth preservation. Instead of disrupting your investment goals, you use them to your advantage raising funds without selling even a single unit. So, whether you are an individual investor or a business owner, this is a highly efficient and flexible way to raise capital when you need it most.
Need liquidity without losing your market position? Apply for a loan against mutual funds and make your investments work harder for you.
