Several Indian banks are increasingly entering the Loan Against Mutual Funds segment to cater to younger, tech-savvy customers who invest heavily in mutual funds.
To get a loan under LAMF, customers would borrow money by pledging their mutual fund holdings as collateral instead of selling them prematurely.
1. Karur Vysya Bank and CSB Bank are preparing to launch digital LAMF products.
2. South Indian Bank started giving loans against mutual funds in March.
3. Canara Bank, which launched this facility last year, is now planning to scale.
A. Young customers are now increasingly investing in mutual funds rather than traditional bank deposits.
B. According to the data published in the Economic Survey 2025-26:
C. The equity and mutual funds accounted for 15.2% of household financial savings in FY25.
D. This share was only 2% in FY12.
E. Meanwhile, the share of bank deposits has declined from over 58% to nearly 35%.
A. In India, assets under management have increased nearly sixfold since the last decade. In April 2016, it was ₹14 lakh crore, which increased to ₹82 lakh crore on April 30, 2026.
A. The basic idea is that borrowers pledge mutual fund units as security for the loan.
B. Banks mark a lien on the mutual fund investments through the asset management company.
C. Customers receive an overdraft limit rather than a lump-sum loan.
1. Customers get instant liquidity without selling investments.
2. Mutual fund units continue to remain invested and may continue generating returns.
3. Interest is charged only on the amount utilized.
A. For equity funds, banks usually lend up to 50 percent of the value.
B. For debt funds, they might lend up to 80 percent.
A. The interest rate on LAMF is usually between 10.75 percent and 11.75 percent per annum.
B. This is cheaper than personal loans, which can have interest rates of 14 percent to 24 percent.
However, there are some risks to consider. If the value of your funds goes down a lot, you might have to promise more units or pay back part of the loan.
A. Unlike fixed deposits, mutual fund values fluctuate with changes in the market.
B. Banks monitor net asset value movements closely.
If the value of pledged mutual funds falls sharply, then the borrowers may need to pledge additional units or partially repay the loan.
Despite these risks, loans against mutual funds are becoming popular as they are:
A. LAMF is a useful alternative during temporary financial emergencies.
B. Can be used by customers who want to avoid breaking long-term SIPs or don’t want to sell investments when the market is down.
As more people are investing in funds and banks, digital LAMF might become a common way to borrow money in India.
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