Loan Against Mutual Fund Interest Rates of Top Banks & NBFCs in India
Here are the interest rates of loan against mutual fund offered by top banks/NBFCs.
| Lenders | Interest Rate (p.a.) |
| State Bank of India | 10.05% |
| Bajaj Finance | Up to 20% |
| Mirae Asset Financial Services | 10.50% |
| Tata Capital | 8.00%-20.00% |
| Axis Bank | 11.49%-13.75% |
| Bank of Baroda | 9.90%-11.25% |
| Kotak Mahindra Bank | 8.00%-11.00% |
| Canara Bank | 15.80% onwards |
| IIFL Finance | Up to 20% |
Rates updated as of 28 October 2024
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Fees & Charges of Loan Against Mutual Fund
While banks/NBFCs may levy scores of incidental charges on LAMF schemes, prospective LAMF borrowers should compare the LAMF options primarily on the basis of the processing fees, Annual Maintenance Fees (AMC), renewal fees, enhancement fees, overdue interest charges, pledge charges and penal interest. Stated below is an overall range of primary fees and charges of LAMF loan which can vary across lenders:
| Particulars | Charges |
| Processing Fees | 0.35%- 5% of the sanctioned loan amount |
| Annual Maintenance Fees (AMC) | 0.1% – 5% of the loan amount |
| Renewal Fees | Up to 1.18% of the sanctioned amount |
| Penal Interest | 15% to 36% p.a. |
| Prepayment/Foreclosure Charges | NIL |
| Pledge Charges | Can widely vary across lenders |
Other Features & Benefits
No-end usage restriction:
Prospective borrowers can use the loan proceeds for any purpose, such as meeting short-term cash flow mismatches, funding business expansion or for meeting various personal needs, like dealing with medical emergencies, funding child’s education and any other financial goals. This allows the borrowers the flexibility to leverage their existing mutual fund investments without redeeming or liquidating them for meeting short or medium-term financial needs. Most lenders also offer LAMF facilities through digital channels
Loan Amount:
The loan amounts for loans against mutual funds usually range from Rs 10,000 to Rs 5 crores. The maximum loan amount of LAMF can vary widely across banks and the type of schemes pledged. For example, Bank of Baroda offers loans ranging from Rs 1 lakh to Rs 5 crores. The bank provides a maximum of Rs 10 lakhs for loans against Equity Oriented Mutual Funds in non-demat form, Rs 20 lakhs for Equity Oriented Mutual Funds in demat form and a maximum Rs 5 crores for debt mutual funds (for both demat and non-demat form).
Some banks and NBFCs offer larger loan amounts, especially to non-individual applicants. For example, Bajaj Finance claims to provide loans against mutual funds of up to Rs 1,000 crores to corporates, partnership firms, Limited Liability Partnerships (LLP), HUF, sole proprietorship firms and trusts. Additionally, loan amounts LAMF offered through digital channels may also vary from the rates offered to applications made through offline channels. For instance, while Tata Capital offers LAMF ranging from Rs 75,000 to Rs 40 crores, the loans offered by the NBFC through its digital channels range between 25,000 to Rs 5 crores.
The limit sanctioned to the LAMF borrowers usually depends on the market value and quantity of the pledged schemes and their LTV ratios set by the lenders. Further, LAMF borrowers can increase their drawing power by pledging more securities with the concerned lender, in the same loan account.
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Tenure:
Most lenders usually provide LAMF facilities for 1-year tenure, which can be renewed on an annual basis depending on the repayment track record of the borrower.
Repayment facility:
The loan facility is usually provided in the form of an overdraft wherein the borrower has to only pay the interest component on a monthly basis. The principal amount can be either repaid at the end of the tenure or in part or in entirety during the loan tenure, at the discretion of the borrower. The interest component is charged on the amount drawn and not on the sanctioned limit. This flexibility makes loan against MF an excellent credit facility to deal with frequent cash flow mismatches.
LTV Ratio:
The LTV ratio for loan against mutual fund can range from 50% to 90% of the Net Asset Value (NVA), depending on the types of schemes pledged with the lenders, i.e. equity fund and debt funds. According to the RBI guidelines, the LTV ratios for equity mutual funds are capped at 75%. However, the guidelines have not set any caps on the LTV ratios of debt funds, leaving the lenders free to determine their LTV ratios for these funds. Below is an overview of the LTV ratios of debt and equity mutual funds usually charged by lenders:
| Collateral | LTV Ratio |
| For equity mutual funds | Up to 60% |
| For debt mutual funds | Up to 90% |
Margin Call:
If the market value of the mutual funds pledged as collateral with the concerned lender drops, the eligible overdraft limit also reduces. If the loan amount drawn from the overdraft account exceeds the revised eligible limit based on the sanctioned LTV ratio, the difference between the eligible limit and the utilized amount will be considered overdue. If the borrower does not clear the overdue payment or pledge additional mutual funds as collateral within the specified timeframe, the concerned lender may sell the pledged mutual fund units.
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Eligibility for availing Loan Against Mutual Fund
Lenders usually set their LAMF eligibility criteria based on the following factors:
- Age Criteria: Lenders usually offer LAMF to individual applicants aged between 18 years to 80 years.
- CIBIL Criteria: The ability of lenders to sell the pledged mutual funds in case of delayed/non-repayment by the borrowers reduces the credit risk for the lenders. This leads lenders to take a more relaxed approach toward credit scores while evaluating LAMF applicants. Thus, most lenders have not disclosed any cut-offs regarding the credit scores for their LAMF applicants. However, some lenders set a minimum CIBIL score required for availing loan against mutual funds. For instance, Bank of Baroda has set a minimum CIBIL score of 701 for individuals applying for LAMF. Applicants with a score of (-1) or (0) are also eligible for availing loan against mutual funds from Bank of Baroda.
- Eligible Entities: Salaried & self-employed individuals, companies, proprietorships, trusts, partnerships/LLPs, NRIs and HUFs can apply for loan against mutual funds, though the application process may differ among lenders. Some banks offer LAMF facility to those applicants only those having a current or savings account with the concerned lender.
- The pledged mutual funds should be from recognized and approved Asset Management Companies (AMC). While most lenders offer LAMF against both CAMS and Kfintech registered mutual funds, some lenders restrict LAMF facility to just CAMS registered funds only.
Documents required for Loan Against Mutual Funds
The documents required for availing LAMF may vary across lenders. Stated below is the list of primary documents usually required by the lender for processing LAMF loan applications:
- ID Proof: Aadhaar Card/Passport/Driving Licence/ Voter ID
- Address Proof: Aadhaar Card/Driving Licence/Passport/Voter ID
- Signature Proof: PAN card/Banker sign verification/Passport
- Pledge form for the creation of pledge
- Current statement of holding for mutual funds
- Self-attested mutual fund statement
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Who should avail Loan Against Mutual Funds
Mutual fund investors failing to avail personal loans due to their poor credit scores or other reasons or being charged higher interest rates for personal loans can consider loan against mutual funds. Most banks and NBFCs provide LAMF facilities without requiring a credit score check. As loan against MF is usually offered in the form of an overdraft facility, individuals facing frequent fund shortages or cash flow mismatches can also consider this facility.
LAMF borrowers should note that lenders usually revalue the pledged mutual funds at periodical intervals. Lenders may also undertake interim revaluation of the pledged funds during steep market corrections or bearish markets. Any sharp fall in the NAV of the pledged funds may lead the outstanding loan amount to exceed the limit sanctioned as per the LTV ratio. In such situations, lenders usually ask their LAMF borrowers to pledge more fund units or pay in cash or cheque to bring back the LTV ratio to the original set levels. In case the borrowers fail to make payments or pledge additional fund units, their lenders may levy penal interest or even liquidate the pledged funds.
FAQs on Loan Against Mutual Fund
How can I get a loan against my mutual fund units?
To avail a loan against your mutual fund investments, you will need to pledge your mutual fund units with the concerned lender. These units can be either in demat form or physical form. If your units are in demat form, you’ll pledge them through the depositories, NSDL or CDSL. If they’re in physical form, the bank or NBFC will require the concerned Registrar and Transfer Agencies (RTAs) i.e. CAMS or Karvy, to place a lien on the pledged units.
How much loan can I get against my mutual fund investments?
The loan amount depends on the type of mutual fund scheme you want to pledge for the loan. The Loan-to-Value (LTV) ratio can range from 50% to 90% of the Net Asset Value (NAV) depending on the LTV ratio set by the bank for the pledged funds and the regulatory cap, if any, imposed by the RBI. According to the RBI guidelines, the LTV ratio for equity mutual funds has been capped at 75%. However, the RBI has not set any limit on the LTV ratios for debt funds, allowing the lenders to use their own discretion for these funds.
Do all banks offer mutual fund loans?
Most banks and NBFCs offer loans against mutual funds as a direct product and some as a part of its Loan Against Securities (LAS) Scheme. Prospective borrowers can visit the bank or NBFC branches to avail mutual fund loans or visit online financial marketplaces like Paisabazaar to know and compare LAMF offers from multiple lenders.
Can I get a loan against any of my mutual fund schemes?
Lenders offering the LAMF facility have an approved list of mutual fund schemes against which loans can be disbursed. Prospective borrowers should check/ask for the list of approved schemes from the respective lender to know if the funds in their investment portfolio are eligible for a lien. However, note that lenders do not offer loan against Equity Linked Saving Schemes (ELSS), popularly known as tax saver or tax saving mutual funds.
Do all banks offer online loan against mutual funds?
Most banks and NBFCs offer loans against mutual funds digitally in addition to their offline facility. For example, HDFC and Tata Capital allow online applications for loans against MFs. On the other hand, some lenders may only allow digital applications. Applicants can check with banks or NBFCs to know about their digital offerings.
Do I have to pay interest on my unused LAMF limit?
Banks/NBFCs offer LAMF facility in the form of overdraft facility wherein the borrower has to pay the interest only on the utilized amount and not on the unused sanctioned limit. Therefore, no interest is required to pay on your unused LAMF limit.
What is the meaning of lien marking in mutual funds loans?
When you take a loan against your mutual fund units, the respective lender digitally marks a lien on your units in their favor. This process ensures that the units cannot be redeemed or sold until the loan is settled.
Would I continue to receive dividends after pledging my mutual fund units?
Yes, you would continue to receive dividends after pledging your mutual funds units. As pledging your mutual fund units does not affect your ownership, any dividends or other benefits associated with the MF units will still be credited to you even when the loan is active.
Can I sell my pledged mutual fund units before closing the loan?
No, you cannot sell your pledged mutual fund units before closing the loan with the concerned lender. Once the units are pledged, they are marked with a lien in favor of the lender, which prevents redemption or sale until the loan is fully repaid.
Do banks and NBFCs charge any foreclosure/prepayment fee on their mutual fund loans?
Banks and NBFCs usually don’t charge any foreclosure or prepayment fee on mutual funds loans as the mutual fund loans are usually offered in the form of overdraft facility. However, borrowers availing mutual fund loans in the form of term loan facility should check with their lenders about the foreclosure/prepayment fee, if any, charged by the lender.