5 Things You Must Know About Loans Against Mutual Funds

Use your mutual fund investment for quick loans, unlock instant liquidity without selling your assets. Apply for a Loan Against Mutual Funds (LAMF) with ZFunds and access it at just 10.49% p.a. interest through a 100% digital process. Funds disbursed within 4 hours- perfect for your urgent financial needs.

What is Loan Against Mutual Funds?

A Loan Against Mutual Funds, also commonly known as LAMF, is a secured way of taking a loan that allows people to borrow funds by pledging their mutual funds units as collateral. This is a secure way of taking a short-term loan for urgent financial requirements without liquidating your mutual fund investments. 

In an LMAF, the bank or financial institution holds your Mutual Fund units until you repay the loan completely, similar to how a regular loan works. The amount that you can borrow depends on the value of your mutual fund units and the time period for which you’re taking the loan. While your Mutual Funds will keep earning returns over time, however, you cannot sell them while you’ve kept them as collateral. This makes it an ideal solution for those who wish to maintain their investments while meeting immediate financial requirements.

How to Get Loan Against a Mutual Fund Via Zfunds?

Follow the given 6 steps and easily avail a loan on mutual funds:

1. Download the ZFunds app.
2. Select the type of mutual funds you want to pledge.
3. Complete one-time KYC registration with PAN and Aadhar details.
4. Lien mark at RTA'w through an OTP authentication.
5. Verify your bank account online through e-mandate.
6. Read and digitally sign the loan agreement online.

That's all and your overdraft facility will be ready to use! 

Eligibility Criteria of Loan Against a Mutual Fund

• Nationality: Indian
• Age: 18 to 65 years old
• Employment: Salaried, self-employed
• Security value: Minimum ₹50,000

Documents of Loan Against a Mutual Fund

• PAN Card
• KYC Documents: Aadhar/ Passport/ Voter's ID
• Consolidated Account Statement

Interest Rates & Charges of Loan Against a Mutual Fund

• Interest rate: Up to 20% per annum
• Processing fee: Up to 4.72% of the loan amount (inclusive of applicable taxes)
• Prepayment charges
• Annual maintenance charges/ renewal fee
• Bounce charges
• Penal interest
• Stamp duty

Benefits of Loan Against Mutual Funds

Loan against mutual funds offers several benefits to the borrower. Here are some of them mentioned:

Lower Interest Rate

Since loans against mutual funds are secure, they often have low interest rates as compared to unsecured loans. 

No Need to Redeem Your MFs

To get a loan against your Mutual Fund units, you don’t have to redeem your investment plan. Instead, you can keep the units as collateral without selling them, and still having their ownership. 

Quick Money

Since these fund units can be pledged online too, one can get the money quickly in their bank account. And because you’re an investor, the application process is completely simple and minimal.

Short-Term Loans

The good part about these loans is that you can take a loan against your mutual fund units for a short period and repay it gradually.

Interest Only on The Used Loan Amount

You don’t have to pay interest on the whole loan amount, instead, you pay interest on only the amount that was used. 

In addition, if you want to continue your mutual funds but require liquid money, a LAMF, or an overdraft can be helpful. Such a benefit makes loans against mutual funds very handy.

Why Choose ZFunds for Loan Against Mutual Funds?

ZFunds stands out as an ideal choice for securing a Loan Against Mutual Funds due to its seamless digital process, fast approval, and secure transactions. It also has many features and benefits. Here’s why:

1. 100% Digital Process: With ZFunds, applying for a loan is fast and hassle-free. The entire process of applying for a loan against a mutual fund is digital, which means you can apply from anywhere, anytime, without the need for physical paperwork.
2. Quick Loan Disbursal: ZFunds understands the urgency of financial needs which is why you get approval on funds in just 4 hours which allows you to manage your expenses without delay.
3. Competitive Interest Rates: ZFunds offers attractive interest rates of 10.49% p.a., making it an affordable option for everyone.
4. Secure and Trusted Platform: ZFunds prioritizes your security, ensuring that your financial information and mutual fund investments are protected throughout the process.
5. No Need to Liquidate Investments: You don’t have to sell your mutual funds to access funds. Keep your investments intact while accessing the cash you need.
6. Flexible Loan Terms: ZFunds offers flexible repayment options that are tailor-made as per your financial situation, making it easier to manage your loan.
7. Transparent Process: There are no hidden fees or complex procedures that you have to do to take a loan against ma utual fund. You’ll know exactly what to expect throughout the loan process.

Choose ZFunds for a smooth, secure, and efficient Loan Against Mutual Funds experience that puts your financial needs first. Apply now and get the funds you need quickly!

Things You Should Know About Before Taking Loan Against Mutual Funds

Here are some things you need to know before considering taking a loan against mutual funds:

Loan Amount Depends On The Type of Mutual Fund Scheme.

The amount you can avail against your mutual fund holdings depends on the type of mutual fund scheme you have invested into and the financial institution from which you will borrow the money. 

The Loan Amount You Can Get Has an Upper Limit.

Like any other type of loan, loans against mutual funds have their own restrictions. For instance, many banks have their minimum and maximum limit on how much loan amount you can avail.

Only Chosen Banks Offer Loans.

Not all banks will offer you a loan against the sort of mutual funds you have invested into. Most of the banks have their own set of mutual fund plans on which they offer loans.

Interest Rates Are Much Lower In Loans Against Mutual Funds Than Personal Loans.

An advantage of taking loans against mutual funds is that the interest rates are lower than those of credit cards or personal loans. It’s because loans against mutual funds are secured with collateral.

Continue Earning Returns On Your Pledged Mutual Fund Units.

Even when you pledge your mutual fund units to take a loan, those units stay invested in the market. It’s because when you pledge your mutual fund units to a bank, you grant the bank the right to sell those units to retrieve the loan amount, in case you default. 

However, as long as you repay the loan amount on time, your mutual fund units remain market-linked and you continue to make profits off of them. 

Conclusion

A Loan Against Mutual Funds (LAMF) is an efficient and smart way to access instant liquidity without having to redeem your investments. Whether you are facing an urgent financial need or simply wish to unlock cash without disturbing your long-term investment goals, LAMF offers flexibility, quick processing, and competitive interest rates. With platforms like ZFunds, the entire process becomes seamless, 100% digital, and hassle-free—allowing you to get funds within hours. However, while LAMF offers numerous benefits, it's important to understand the associated risks, such as market fluctuations and margin calls. Always borrow responsibly, keep track of repayment schedules, and ensure you're using the loan amount for the right purposes. If used wisely, LAMF can be a valuable financial tool to help you stay invested while managing your liquidity needs.

FAQs of Loan Against Mutual Fund

1. What is the tenure of the loan against mutual funds?

By default, the tenure for a loan against mutual funds is 36 months. However, you can close the loan earlier if you wish to do so. 

2. What is a Loan Against Mutual Funds?

A Loan Against Mutual Funds is a type of secured loan where borrowers pledge their MF units as collateral to take a loan directly from banks or non-banking financial companies. An LAMF is secure and hence, serves to fulfill urgent financial requirements. 

3. Which mutual funds are accepted for availing a loan against mutual funds?

Loans are available against equity or hybrid mutual funds which can be availed at any bank or non-banking financial institution. 

4. What is the process for availing a loan against mutual funds?

Here is a 4-step guide to avail a loan against mutual funds:

1. Import and select the mutual funds you want to pledge as collateral.
2. Add your bank account to receive the loan amount and auto-debit the interest.
3. Finally, pledge your holdings.
4. Sign the loan agreement online.

5. What types of mutual funds are eligible for LAMFs?

Equity mutual funds and fixed-income mutual funds are eligible for loans against mutual funds. For equity mutual funds, one can avail a loan for up to 50% of the net asset value, and for fixed-income mutual funds, one can avail a loan for up to 70%-80% of the net asset value.

6. Can I use a LAMF for any purpose?

Yes, a loan against mutual funds can be used for any purpose except for any illegal or spectacular activities. 

7. What documents are required for a LAMF application?

Here are all the documents required to fill in a LAMF application:

• PAN Card
• KYC Documents: Aadhar/ Passport/ Voter’s ID Card
• Consolidated Account Statement

8. How does the loan approval process work for LAMFs?

A loan against mutual funds works by allowing investors to borrow money against their mutual fund investments. Hence, this type of loan is also known as a “loan against securities” or “margin funding”. 

To apply for the loan, the investor must pledge their mutual fund units as collateral to the bank. Then the bank will lend a percentage (ranging between 50% to 80%) of their mutual fund units. Note that the loan amount and interest rate will vary.

The borrower will have to repay the interest rate on the loan amount, which is usually higher than the mutual fund returns. Additionally, the borrower must repay the loan within a specific period. 

In case the borrower doesn’t repay the loan, the bank may sell the mutual fund units. So, investors must consider the risks as well.

9. What happens to my LAMF if I sell the pledged mutual funds before repaying the loan?

You cannot sell your pledged mutual funds during the repayment period of a loan against mutual funds. It’s because the lien against these fund units remains forced until you have paid back the loan amount along with interest. 

10. What if my mutual funds are pledged and my loan creation fails?

If your loan account creation fails after you've pledged your mutual funds, your funds will stay safe and secure since the lien marking or pledging is confirmed at RTAs. However, you can still reach out to customer support. 

11. How much time does the disbursement of funds take?

Once you accept the loan, the bank will disburse the loan amount to your bank account. However, it may take a few days to finish the disbursement process depending on the bank’s policies.

12. What are the disadvantages of a loan against mutual funds?

Below are the three major disadvantages of availing a loan against mutual funds:

1. Loan amount: Banks will give a loan of up to 50% of the value of your equity funds and 80% of the value of fixed-income funds.
2. Eligibility list: There is a list of eligibility securities and schemes offered by banks against which you can get a loan.
3. Margin Call: If the value of your pledged MF units falls, you may get a margin call. In such a case, you may be required to either repay a portion of your loan amount or pledge additional collateral to recover the shortfall.