Archive · 16 Jun 2025
Loans Against Mutual Funds: How They Work and Potential Risks
Imagine you have money saved in mutual funds.
Sometimes, you need money quickly.
Instead of selling your mutual funds, you can get a loan using them as security.
The lender gives you money based on how much your mutual funds are worth.
You only pay interest on the money you borrow.
It's like a quick loan, even if you don't have a perfect credit score.
However, if your mutual fund's value goes down, you might have to pay extra to cover the loss.
Banks and other financial companies offer these loans.
Loans against mutual funds allow borrowers to use their investments as collateral for a loan.
Interest rates are determined by the lender and the performance of the pledged funds, not necessarily the borrower's credit score.
Borrowers can typically borrow up to 50% of the value of pledged equity funds and 70%-80% of debt funds.
Many banks and NBFCs offer loans against mutual funds, including SBI, HDFC, ICICI, and Bajaj Finserv.
Risks include margin shortfalls, where borrowers must pay the difference if the fund value decreases.
- Who
- Individuals who need loans but may not have high credit scores or want to avoid selling their investments.
- What
- Loans against mutual funds use investments as collateral for borrowing money.
- When
- The loan process can be quick, offering urgent money when needed.
- Where
- Loans are available from various banks and NBFCs.
- Why
- To provide quick access to funds without selling investments, with interest rates based on fund performance and lender terms.
Benefits
Risks
Loan Accessibility vs. Risk
Benefits
Can get a loan easily even without credit score
Risks
Potential risk if value of pledged funds drops
- Loan Type
- Loan against mutual funds
- Collateral
- Mutual fund units
- Interest Rate Determinants
- Lender, fund performance
- Loan Amount (Equity Funds)
- Up to 50% of value
- Loan Amount (Debt Funds)
- 70%-80% of value
- Banks Offering
- SBI, HDFC, ICICI, Axis, Bank of Baroda
- NBFCs Offering
- Tata Capital, Bajaj Finserv, Volt Money