Features and Benefits of Loan Against Mutual Funds

"Loan against mutual funds is a great way to take advantage of your mutual fund investments. Read this blog to know the benefits of loan against mutual funds."

Benefits of Loan Against Mutual Fund

4 mins read

Published: 25 October 2023

Updated: 25 October 2023

A Loan Against Mutual Funds is one of the financial aid that is provided by the banks and the NBFCs to the eligible borrower. This is a secured loan in which the collateral is the mutual funds. This type of loan is typically offered by banks and financial institutions after checking the eligibility of the borrower. The lending institution assesses the value of the mutual fund holdings and offers a loan amount based on a certain percentage of this value, known as the loan-to-value (LTV) ratio. The LTV ratio may vary from one institution to another.

The Loan amount that you will get from the loans against mutual funds can help you for various purposes, such as personal expenses, investments, or emergencies, while still retaining ownership of your mutual fund units. Interest rates on these loans are generally lower than unsecured personal loans, making them an attractive option for those in need of funds. It's important to note that if the borrower is unable to repay the loan, the lender has the right to sell the pledged mutual fund units to recover the outstanding amount. Mutual fund loans can provide liquidity without the need to redeem the investments, allowing investors to benefit from potential future gains in their mutual funds.

Benefits of Loan Against Mutual Funds

Loan against mutual funds offers a range of advantages to borrowers who are looking for financial flexibility without having to liquidate their investments. Here are some of the key benefits:

1. Liquidity Without Selling: One of the benefits of a loan against mutual funds is that it allows investors to access funds without having to sell their investment holdings. This means you can maintain your exposure to the financial markets and continue to benefit from any potential future gains in your mutual funds.

2. Quick and Convenient: Obtaining a loan against mutual funds is often a faster and more convenient process compared to traditional loans, like personal loans or home loans. It involves minimal paperwork and is usually processed relatively quickly, making it a suitable option for addressing immediate financial needs.

3. Lower Interest Rates: Interest rates on loans against mutual funds are typically lower than unsecured personal loans, credit card debts, or payday loans. This can lead to substantial savings on borrowing costs, making it a cost-effective way to access funds.

4. Flexible Loan Amounts: You can get loan against mutual funds based on the value of your mutual fund holdings and the lender's prescribed Loan-to-Value (LTV) ratio. LTV ratios typically range from 50% to 80%, allowing you to access a substantial portion of your mutual fund portfolio's value.

5. Tax Efficiency: Loan against mutual funds does not trigger capital gains tax or redemption charges because you're not selling your mutual fund units. This can be a tax-efficient way to access funds, especially if you have significant capital gains in your portfolio.

6. Improved Credit Score: If you repay the loan against mutual funds on time, it can have a positive impact on your credit score. Timely repayments demonstrate financial responsibility and may improve your creditworthiness, making it easier to access credit in the future.

7. Choice of Interest Payment: Loan against mutual fund features often offer flexibility in choosing how to pay the interest on the loan. You can opt for regular interest payments or choose to capitalize the interest, which means it gets added to the loan principal. This can be helpful if you want to minimize your immediate cash outflows.

8. Highly Accessible: Loans against mutual funds are accessible to a wide range of investors, including retail investors, high-net-worth individuals, and even institutional investors. This inclusivity makes it a versatile financial solution.

9. Risk Management: In the event of a market downturn, loans against mutual funds allow you to access funds without selling at a potentially unfavorable time. This can be a valuable risk management strategy, especially for investors concerned about market volatility.

10. Preservation of Investment Goals: While opting for the mutual funds loan you can stay committed to your long-term investment goals and avoid disrupting your financial plan. This is particularly beneficial for individuals who want to avoid the temptation of withdrawing their investments prematurely.

Documents required for taking a Loan Against Mutual Funds

Mentioned below are the essential documents that are required to get Loans against mutual funds.

1. Loan Application Form: Start by filling out the loan application form provided by the financial institution offering the loan.

2. KYC Documents: Submit your Know Your Customer (KYC) documents, which include your identity proof (e.g., Aadhar card, passport, driver's license) and address proof (e.g., utility bills, bank statements).

3. Mutual Fund Statement: Provide a copy of your mutual fund statement to demonstrate ownership of the funds you want to use as collateral.

4. Loan Agreement: Sign the loan agreement, which outlines the terms and conditions of the loan, including interest rates and repayment schedule.

5. Pledge Form: Complete a pledge form that specifies the mutual funds you intend to pledge as collateral for the loan.

6. Power of Attorney: Some lenders may require a power of attorney to manage your mutual fund units during the loan tenure.

7. Bank Statements: Furnish your recent bank statements to confirm your financial stability and repayment capacity.

8. Credit Report: Some lenders may request your credit report to assess your creditworthiness.

9. Passport-size Photographs: Attach recent passport-size photographs as part of the application.


While loans against mutual funds offer numerous benefits, it's essential to exercise caution and prudence when using this facility. Failing to repay the loan can result in the liquidation of your mutual fund units, and you may incur losses if the market value has declined since you took out the loan. Additionally, it's advisable to compare the terms, interest rates, and fees of different lenders before choosing the one that best suits your financial needs. My Mudra is offering loans against mutual funds at least interest rate. Choose us and pave the way for financial stability.

Also read: How to take Loan Against Mutual Fund online?

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