loan against mutual funds

What Are The Benefits Of Loan Against Mutual Funds(LAMF)?

ByAbhiloans

Have you ever faced a situation where you needed urgent funds but did not want to sell your mutual fund investments? For many investors, mutual funds are long-term wealth-building tools, and liquidating them during a financial emergency can disrupt carefully planned goals.

This is where a Loan Against Mutual Funds (LAMF) becomes a smart financial solution. It allows you to access instant liquidity by pledging your mutual fund units as collateral, without redeeming them or missing out on future growth.

In this blog, we’ll explain what a loan against mutual funds is, who can apply, and most importantly, the key benefits of loan against mutual funds that make it one of the most efficient borrowing options available today.

What Is a Loan Against Mutual Funds (LAMF)?

A loan against mutual funds is a secured loan where you pledge your equity or debt mutual fund units to a bank or NBFC to borrow funds. Instead of selling your investments, the units are marked under lien with the lender, and you receive a credit limit based on their value.

This option is ideal for investors who require quick loans online while continuing to stay invested in the market. Since the loan is secured, lenders offer lower interest rates compared to unsecured loans like personal loans.

Who Can Apply for a Loan Against Mutual Funds?

Any Indian resident aged 18 years or above who holds mutual fund investments in demat or SOA format can apply. The loan amount depends on factors such as:

  • Type of mutual fund (equity or debt)
  • Market value of units
  • Loan-to-Value (LTV) ratio set by the lender

The application process is simple and mostly digital, making it easy to unlock funds quickly.

Benefits of Loan Against Mutual Funds

A loan against mutual funds offers multiple advantages that make it a prudent choice for both short-term and emergency financial needs.

Minimal Documentation and Easy Eligibility

One of the biggest benefits of a loan against mutual funds is the minimal documentation requirement. Most lenders do not require income proof or extensive credit checks.

Typically, you only need:

  • KYC documents
  • Proof of mutual fund holdings

With online applications, digital copies are sufficient, making the entire process hassle-free compared to traditional loans.

Lower Interest Rates Compared to Personal Loans

Since LAMF is a secured loan, it comes with significantly lower interest rates than unsecured loans. Interest rates usually start much lower than personal loans, helping you reduce your overall borrowing cost.

For instance, at NBFCs like Abhiloans, interest rates can start as low as 0.67% per month, depending on the scheme and portfolio type. Processing fees are also relatively low and transparent.

Flexible Repayment and No Prepayment Penalty

Another major advantage of loan against mutual funds is repayment flexibility. Borrowers can:

  • Pay interest only on the amount used
  • Repay the loan partially or fully at any time
  • Close the loan early without penalties (subject to lender terms)

This flexibility makes LAMF ideal for managing short-term cash flow gaps without long-term debt stress.

Quick Loan Approval and Fast Disbursal

When time is critical, LAMF stands out as an instant loan against securities. Unlike traditional loans that take days or weeks, loans against mutual funds can be approved and disbursed within hours.

Many digital NBFCs offer same-day disbursal. For example, Abhiloans can credit funds to your account in as little as four hours, making it suitable for emergencies.

Tax Efficiency Compared to Selling Mutual Funds

Selling mutual funds triggers capital gains tax, which can range from 10% to 15% or more depending on the type and holding period. By opting for a loan against mutual funds instead of redeeming units, you avoid capital gains tax and retain the tax efficiency of your investments. This is a major benefit for investors who want liquidity without tax leakage.

No Impact on Long-Term Investment Goals

Mutual fund investments are often aligned with long-term goals such as retirement, children’s education, or wealth creation. Selling them prematurely can derail these plans.

With a loan against mutual funds:

  • Your investments remain intact
  • Units continue to stay market-linked
  • You may still benefit from potential appreciation

This makes LAMF a smarter alternative to liquidation during financial emergencies.

Why Choose a Loan Against Mutual Funds Over Other Loans?

Compared to personal loans or credit cards, a loan against mutual funds offers:

  • Lower interest rates
  • Faster approval
  • No impact on investment growth
  • Better tax efficiency

It is especially useful for business needs, medical emergencies, short-term funding, or managing cash flow without disturbing your portfolio.

Conclusion

A Loan Against Mutual Funds (LAMF) is a powerful financial tool that helps you unlock the value of your investments without selling them. It offers quick liquidity, lower interest rates, flexible repayment, and tax efficiency, making it one of the smartest borrowing options for mutual fund investors.

However, to fully benefit from a LAMF, it is important to choose the right lender one that offers fast disbursal, transparent charges, no hidden fees, and flexible repayment options.

Abhiloans is one such trusted NBFC, offering loans against mutual funds with limits of up to ₹10 crore, competitive interest rates, and a seamless digital process. If you’re looking for quick funds without compromising your investment journey, a loan against mutual funds could be the right solution.