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Repair Windows errors before they cause bigger problemsFix Now →Scan for outdated or missing drivers - takes under a minuteDriver Scan →Clear out junk files and repair common Windows errorsFree Scan →To get a loan against mutual funds, apply for a lender’s secured overdraft, pledge eligible units held in your name, complete KYC and the lender’s verification, and draw only within the approved limit. The units remain invested, but a lien or pledge restricts your control over them. Interest is generally charged on the amount you actually use, not the entire sanctioned limit. If the fund value falls and you do not restore the required margin, the lender can require repayment, extra collateral or ultimately sell pledged units under the facility agreement.
There is no single India-wide eligibility rule, loan-to-value (LTV) or fee schedule. The figures below are lender-specific disclosures accessed in 2026. Confirm the current Key Fact Statement, sanction communication and facility agreement before accepting an offer.
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What a loan against mutual funds is
A loan against mutual funds (LAMF) is usually a secured overdraft. Instead of redeeming units, you authorize a bank to mark a pledge or lien on eligible holdings. The bank sanctions a drawing limit based on the type and value of those units. You can then withdraw part of that limit as needed and repay it according to the account terms.
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The investment continues to be exposed to market movement. You do not receive the units free of the security until the outstanding obligation is cleared and the lender releases the pledge. You normally cannot freely redeem or transfer pledged units while the lien remains. A default, or failure to restore collateral after a market fall, can allow the lender to liquidate units under its agreement.
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Why investors use the facility
- It can provide short-term liquidity without an immediate redemption.
- An overdraft structure can avoid paying interest on an unused portion of the sanctioned limit.
- The investments remain in the market, so you retain their gains or losses rather than converting them to cash immediately.
Keeping the investment does not guarantee a better financial result. You still owe interest, fees and principal while the pledged portfolio can decline in value.
Who can qualify
Eligibility is decided by each lender, the borrower’s profile and the specific mutual-fund folio. Do not treat one bank’s criteria as a universal rule.
Common borrower conditions
- Age and residency: Federal Bank’s disclosure describes resident Indian individual borrowers aged 18 to 70. Other lenders may use different limits or customer categories.
- Ownership: The units generally must be held in the borrower’s own name. Joint, minor, company, trust or non-individual holdings may be excluded or require a different process.
- Single-name matching: State Bank of India (SBI) says its online route requires the applicant and fund holdings to be in a single name, with matching PAN and mobile number.
- Bank relationship: SBI’s online product page specifies a single-mode savings account and a steady income source. A lender may also require an account for servicing interest and repayments.
- KYC and verification: PAN, identity, address, bank-account and folio details must pass the lender’s checks. Approval remains subject to documentation, assessment and bank policy.
Eligible schemes and exclusions
Only schemes on the lender’s approved list can normally be pledged. SBI’s YONO description refers to eligible open-ended schemes from CAMS-registered asset-management companies. Federal Bank says its approved list applies and specifically excludes ELSS and schemes outside that list. A fund that is eligible at one bank may be rejected at another.
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Check the exact scheme name, plan, option and folio before relying on an indicative amount. Closed-ended funds, restricted units, units with an existing lien and holdings with a mismatch in ownership or KYC may not qualify.
How to apply: the step-by-step process
- Check eligibility and the scheme list. Use the lender’s current online eligibility tool or branch checklist. Confirm age, residency, ownership, PAN, mobile number, linked account, KYC status and whether each scheme is approved. An online figure is only indicative; Federal Bank states that an indicative eligibility result is not a sanction or commitment.
- Estimate the available limit. Note the current value of the units and the LTV applicable to their category. Equity, hybrid, exchange-traded-fund (ETF) and debt holdings can receive different margins. Leave a buffer for market declines rather than planning to borrow the maximum shown.
- Select the units and amount to pledge. Choose only the units needed for the proposed borrowing. The lender or its registrar/depository workflow creates the pledge or lien. Verify which folios will be encumbered and whether the pledge has an expiry or renewal requirement.
- Submit KYC and supporting information. Provide identity and address documents, PAN, bank details, income information where requested, and consent for the pledge. Resolve any name, mobile, PAN or folio mismatch before accepting the facility.
- Read the Key Fact Statement and sanction terms. Check the annual interest rate, whether it is floating, the calculation and debit frequency, processing charge, taxes, stamp duty, pledge and release costs, renewal fee, tenure, late/default charges, minimum utilisation, prepayment terms and margin-call procedure. Federal Bank says the final rate, annual percentage rate, charges and obligations are disclosed in its lender communications.
- Accept and complete confirmation. SBI YONO describes accepting the terms and confirming with a one-time password. Other lenders may use an electronic mandate, digital signature or branch confirmation. Approval is still subject to the lender’s final verification and documentation.
- Wait for the limit to be enabled. Once the pledge is recorded and the facility is approved, the overdraft limit becomes available subject to the lender’s conditions. Do not assume that a displayed limit is usable until the sanction and account activation are confirmed.
- Draw only what you need. Withdraw within the available limit and maintain the linked account for monthly interest or other debits. Keep records of the utilised balance, repayments and remaining headroom.
- Monitor the collateral continuously. Review the lender’s valuation, LTV and margin notices. If the value falls, add eligible collateral, deposit cash or partially repay promptly to restore the required margin.
- Close and release the pledge. Pay the outstanding principal, accrued interest and any permitted closure charges. Obtain written confirmation that the lien has been released before attempting to redeem or transfer the units.
How much can you borrow? LTV, margins and limits
LTV is the proportion of the lender’s recognised fund value that can support borrowing. A 50% LTV means ₹1 lakh of recognised collateral supports up to ₹50,000 before other limits and checks. The lender may value units conservatively, revise the value as markets move and impose a lower operational limit.
| Lender and disclosure | Eligible category | Published LTV or margin | Published facility limits | Important qualification |
|---|---|---|---|---|
| SBI online product page, accessed 2026 | Equity, hybrid and ETF | 50% margin | Minimum ₹25,000; maximum ₹20 lakh | Applies to eligible schemes and is subject to bank policy. |
| SBI online product page, accessed 2026 | Debt and fixed-maturity-plan (FMP) | 25% margin | Maximum ₹5 crore | Category, scheme eligibility and valuation rules apply. |
| Federal Bank disclosure, accessed 2026 | Equity and hybrid | Up to 50% LTV | Product summary: ₹25,000 to ₹1 crore | A separate detailed section states a ₹1 lakh minimum; confirm the applicable minimum directly. |
| Federal Bank disclosure, accessed 2026 | Debt | Up to 75% LTV | Product summary: ₹25,000 to ₹1 crore | Actual availability is subject to holdings, regulatory limits and credit policy. |
The SBI figures are margins and maxima for that product, not market averages. Federal Bank’s conflicting minimums should be treated as unresolved until the bank confirms which section governs your application. Neither table establishes what another lender will offer.
Interest and every cost to compare
For an overdraft, the key question is usually how much of the sanctioned limit you use and for how long. Federal Bank describes the basis this way: “Interest is charged on the utilised outstanding amount at the applicable rate and is serviced monthly.” The applicable rate, however, is lender-specific and may change under the sanction terms.
Upfront and recurring charges disclosed by lenders
| Cost item | SBI online product page (accessed 2026) | Federal Bank disclosure (accessed 2026) | What to verify |
|---|---|---|---|
| Processing fee | 0.50% of loan amount; minimum ₹1,000 and maximum ₹10,000, plus applicable service tax | 0.50% of sanctioned limit; minimum ₹1,500 and maximum ₹7,500, plus applicable taxes | Whether the percentage applies to the sanctioned limit or amount drawn, and the tax treatment. |
| Renewal or annual review | ₹1,000 plus applicable service tax | ₹1,000 plus applicable taxes | Renewal date, approval conditions and whether a revised valuation is charged. |
| Tenure | Not stated in the cited product figures | 12 months | Whether renewal is automatic or requires fresh approval. |
| Early repayment or closure | Not stated in the cited product figures | Nil early repayment/closure charges stated | Accrued interest, release, pledge, stamp-duty and statutory charges that still apply. |
| Interest rate | Subject to bank policy; verify at application | Final rate disclosed in sanction and Key Fact Statement | Annual rate, benchmark or reset mechanism, daily calculation and debit date. |
In addition to the headline rate and processing fee, ask for stamp duty, statutory taxes, pledge creation and release charges, valuation or documentation fees, renewal or maintenance charges, late-payment/default charges and the cost of adding or replacing collateral. A lower processing fee can still be more expensive if the rate, renewal cost or margin terms are less favourable.
Illustrative calculation method
Suppose a lender approves a ₹2,00,000 limit and you draw ₹80,000. If the agreement calculates interest daily on the utilised outstanding balance, interest accrues on ₹80,000 while that amount remains outstanding, not automatically on the unused ₹1,20,000. The actual rupee cost depends on the lender’s annual rate, day-count convention, repayment timing, taxes and any fees. This example explains the mechanism only; it is not a quoted rate or offer.
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What happens when the market falls
The pledged units remain market-linked collateral. If their recognised value declines enough to breach the permitted LTV or margin, the lender can issue a margin call. Federal Bank’s disclosure says the borrower may need to add funds, pledge additional eligible units or partially repay.
Practical response to a margin call
- Read the notice for the exact shortfall, deadline and accepted payment channel.
- Check whether the lender has revalued every pledged scheme correctly and whether a corporate action or transaction is pending.
- Deposit cash or transfer additional eligible units only after confirming the lender’s process.
- Repay part of the utilised balance if adding collateral would create an excessive concentration.
- Keep proof of the payment or additional pledge and obtain confirmation that the margin has been restored.
If you do not restore the margin, or if another default occurs, the lender’s terms may permit liquidation of pledged units. A sale can occur when markets are weak and can create a realised loss or tax consequence independent of the loan interest. The facility agreement, not a general industry practice, determines the notice period and remedy.
Comparing lenders on a like-for-like basis
Use the same questions for every offer. ICICI product and FAQ material describes a one-year tenure with possible renewal and says charges are disclosed before confirmation; the surfaced material does not provide a complete, directly comparable current schedule of LAMF rates and fees, so it cannot be ranked on price from those statements alone.
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| Comparison axis | Questions to ask |
|---|---|
| Scheme eligibility | Is the exact AMC, scheme, plan, option and folio approved? Are ELSS, closed-ended or restricted units excluded? |
| Borrower and ownership | Must the borrower be a resident individual? What age range, account relationship, PAN/mobile match and holding pattern are required? |
| LTV and valuation | What percentage applies to equity, hybrid, ETF and debt funds? How often are units revalued, and can the lender apply a haircut? |
| Limits | What are the minimum and maximum facility amounts, and do regulatory or internal credit limits reduce them? |
| Interest basis | Is interest charged only on utilisation? Is calculation daily? What is the current annual rate, benchmark, reset rule and monthly servicing date? |
| Fees and taxes | What are the processing, pledge, release, stamp-duty, statutory, renewal, valuation, late and default charges? |
| Tenure and renewal | How long does the facility run, and does renewal require fresh KYC, valuation, approval or a fee? |
| Prepayment and closure | Are there early-closure charges? How quickly is the lien released after final payment? |
| Margin remedies | What LTV triggers a call, how much notice is given, and when can units be sold? |
Record the answers in writing. Online calculators can change as the portfolio value changes and are not substitutes for a sanction letter.
When this facility may fit—and when it may not
It may fit when
- You need temporary liquidity and have a repayment source that does not depend on selling the pledged funds at an uncertain price.
- Your units are clearly eligible, unencumbered and held in the required ownership pattern.
- You can tolerate a margin call and maintain a cash buffer for interest and partial repayment.
- The total cost is lower or more flexible for your situation than redeeming investments or using another secured facility.
Consider alternatives when
- Your income is unstable and you may be unable to meet monthly interest or a margin call.
- The proposed borrowing is close to the maximum LTV, leaving little protection against a normal market decline.
- The units are intended for a near-term goal and a forced sale would be particularly damaging.
- The lender excludes your scheme, ownership pattern or residency status.
- You cannot establish the complete rate and fee schedule before signing.
Application checklist
- Government identity and address documents, PAN and current contact details.
- Proof that the mutual-fund folio is in the required name and has matching KYC information.
- List of scheme names, plans, options, units and current values.
- Confirmation that each scheme appears on the lender’s approved list.
- Details of the linked savings account and any income information requested.
- The Key Fact Statement, sanction letter and facility agreement.
- A written schedule of interest, processing, taxes, pledge, release, renewal, default and closure charges.
- The margin-call threshold, response deadline and liquidation terms.
- A repayment plan that includes interest, fees and a buffer for market declines.
Bottom line
A loan against mutual funds can turn eligible holdings into a flexible overdraft without an immediate redemption, but it is not risk-free cash. Compare the exact scheme eligibility, LTV, limit, utilisation-based interest, all fees, renewal rules and margin remedies for the lender you choose. Borrow below the maximum, keep liquidity for a margin call and do not accept an indicative online amount until the lender confirms the final terms in writing.
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