How to get a loan against mutual funds

A loan against mutual funds lets you borrow money using your fund units as security, without selling them. The fund's registrar marks a lien on the units in the lender's favour. They stay invested in your name but can't be sold until the loan is repaid. A bank may lend up to 75% of the value of equity or hybrid fund units and up to 85% of debt fund units. Many lend less.

What is a loan against mutual funds?

A loan against mutual funds is a loan for which you pledge your fund units as security. A pledge means offering something as security for a loan. The lender holds a claim on it until you repay.

For units, that claim is called a lien. It is a hold the lender places on your units, so you can't sell them while the loan is open. You don't sell anything. The units stay in your name. Their value keeps moving with the NAV, the price of one unit of the fund, worked out every day.

Koshex arranges loans against mutual funds.

How does a loan against mutual funds work?

The lender asks the fund's registrar to mark a lien on the units you offer. The registrar is the agency that keeps the fund's unit records. One fund house's statement of additional information describes it this way. Unit holders can borrow against their units from a bank by getting a lien registered with the registrars. RBI rules and the bank's own instructions apply. The same document says the fund does not recognise a pledge until the registrar has registered it and issued a confirmation.

One bank's online process shows how this looks in practice. According to that bank's page, you accept the lien terms with an OTP. CAMS (a registrar) marks the lien in real time, and your overdraft account opens. An overdraft is a credit limit from which you draw as needed. That bank charges interest only on the amount you use, not on the whole limit. Other lenders may charge differently.

Once the lien is on, you can't redeem or switch those units until the lender releases it. The same fund house says the pledgor cannot redeem pledged units until the lender confirms in writing that the lien may be removed. A lien also blocks other facilities. A fund house's document says an STP, a regular transfer from one scheme to another, stops once all units are pledged.

If you don't repay, the lender can have the units redeemed. That fund house says the lender may apply for redemption in its own favour, and the fund may redeem after giving you 15 days' notice. One bank's page says that if the loan is not repaid by the end of the tenure, it will sell the lien-marked units. The money goes against the loan. Anything left over goes to your linked deposit account.

In plain terms, pledging itself creates no capital gain. The law counts a sale, exchange or relinquishment of an asset as a transfer. Marking a lien is none of these, because you keep the units and get them back on repayment. If the lender does redeem your units, that redemption is a sale of your units. The gain or loss is yours, taxed by the usual rules for that kind of fund.

How much can you borrow against mutual funds?

For loans from banks, RBI's ceilings are 75% of the value of non-debt fund units and 85% for debt fund units. A bank may lend less under its own policy. These ceilings have applied since 1 April 2026. They bind commercial banks and small finance banks. NBFCs, the non-bank finance companies, set their own limits for fund units.

The ratio of the loan to the value of the units is called loan-to-value, or LTV. An LTV of 75% means ₹75 of loan for every ₹100 of units. (Equity funds hold company shares. Debt funds lend to governments and companies.)

The value used is not simply today's NAV. RBI's rule values units at the lower of two figures: the previous day's NAV, or the average daily NAV over six months. So the limit moves with the market.

Two more limits matter.

• Across the whole banking system, loans to one person against equity-fund units, shares, ETFs, REITs and InvITs are capped at ₹1 crore.
• RBI sets no rupee cap for loans against debt fund units. Banks limit those under their own policy.

Lenders often lend less than the ceiling. For example, SBI's loan page (read October 2026) offers an overdraft at 11.50% a year, charged only on what you draw. It lends up to half the value of equity fund units and three-quarters of debt fund units, for 12 months at a time. Terms differ by lender and change, so treat that as one dated example, not a market rate.

A worked example

Suppose you hold ₹4,00,000 of equity fund units and ₹2,00,000 of debt fund units, valued the way RBI requires.

• At RBI's ceilings, a bank could lend at most 75% of ₹4,00,000, which is ₹3,00,000, plus 85% of ₹2,00,000, which is ₹1,70,000. The total is ₹4,70,000.
• At the proportions SBI's page lends against, the figures are 50% of ₹4,00,000, which is ₹2,00,000, plus 75% of ₹2,00,000, which is ₹1,50,000. The total is ₹3,50,000.

The gap shows that RBI's ceiling is a maximum. A bank can choose to stay well under it.

What happens if your fund's NAV falls?

If the NAV falls, the value of your units falls, and so does the amount the lender allows against them. A margin shortfall is the gap that opens when the loan is bigger than the lender now allows.

Here is an assumed case. Say your equity units fall 20%, from ₹4,00,000 to ₹3,20,000. You have drawn ₹2,00,000 against them from a lender that lends up to 50% of their value. The lender now allows 50% of ₹3,20,000, which is ₹1,60,000. You are ₹40,000 over. You would need to repay that amount or add more units as cover. Otherwise one bank's page says it may sell or liquidate the units it needs to restore the margin.

A bank must monitor the ratio on an ongoing basis. It must fix any breach immediately, and in no case later than seven working days from the day it occurs.

A forced sale is an ordinary sale. You may pay tax on any gain, and the scheme's exit load applies if the units are still inside its exit-load period. Exit load is a fee some funds charge if you sell within a set time after buying. You also lose the units just when prices are low.

Koshex talks you through sharp market falls before you redeem. The article on whether to redeem when markets are down covers that decision in more detail. A loan is also not an emergency fund. For that, see where to keep your emergency savings.

Loan, personal loan or selling: how do they compare?

The three routes differ mainly in what you give up and what can go wrong. The table sets them side by side.

Tax on selling depends on the fund, under the Income-tax Act, 2025. For an equity-oriented fund, a gain on units held 12 months or less is taxed at 20%, if STT was paid on the sale. STT is securities transaction tax. After more than 12 months, gains above ₹1,25,000 in a tax year are taxed at 12.5%, again with STT paid. Some debt fund units count as Specified Mutual Fund units. One bought on or after 1 April 2023 is taxed at your slab rate whatever the holding period. A resident has no TDS (tax deducted before the money reaches you) on redemption gains.

The steps of a sale are in the guide to selling mutual funds online.

A few factors decide which route fits.

• How long you need the money. A loan has interest running every day it is open.
• The interest cost against the cost of selling. Take ₹1,00,000 drawn for 90 days at 11.50% a year. On simple interest and a 365-day year, that is ₹1,00,000 × 11.5% × 90 ÷ 365, or about ₹2,836. The day-count is our assumption, because SBI's page does not state its method. Set that against the tax and exit load a sale could bring.
• Whether your goal still needs those units. Selling ends the investment. A loan keeps it, but a fall can still force a sale.

For other ways to borrow, see the guides to a personal loan and loans against fixed deposits. The personal loan calculator shows what a personal loan's instalments would be.

What should you check before you borrow?

Check the terms of the lender in front of you, because they vary. A short list:

• The LTV the lender applies to your funds, which may be lower than RBI's ceiling.
• The interest rate, and whether it is charged only on what you draw.
• The tenure and how renewal works. SBI's page, for example, gives a 12-month maximum period, renewable for a further 12 months.
• What the lender does if the loan goes over the allowed amount, and how fast you must cover a shortfall.
• Whether there is a charge for repaying early.
• Whether the lender accepts your schemes.
• Whether your units are in an ELSS lock-in. One fund house's pledge facility excludes ELSS units until the three-year lock-in ends. A lock-in is a period during which you cannot sell the units at all. One scheme's offer document says units cannot be pledged before then. See your ELSS lock-in period is over: what's next for what follows.
• Whether you are an NRI. Some lenders do not offer these loans to NRIs.
• That the loan appears in your credit report, like any other loan.

Pledged units are also tied up in other ways. Units under lien can't be transmitted to a nominee or legal heir until the lender removes it. The article on claiming mutual fund investments after an investor's death explains that process.

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