In today’s dynamic financial world, flexibility and smart planning are key to navigating unexpected expenses without derailing long-term goals. Loans Against Mutual Funds (LAMF) have emerged as a practical and efficient solution for individuals who need quick access to cash but don’t want to break their investments. By using mutual fund units as collateral, you can unlock liquidity while your money continues to grow in the market. But before opting for this borrowing method, it’s essential to understand how it works, what to expect, and how it compares with other financial options. In this article, we’ll take you through the 5 most important things you must know about Loans Against Mutual Funds—so you can make informed, confident financial decisions.

5 Things You Must Know About Loans Against Mutual Funds

1. You continue to own your mutual fund investments

When you avail your loan against mutual funds, you are not necessarily required to sell your investments. You simply pledge them to a bank or NBFC as collateral. Depending on the present market value of your mutual fund units and the loan period, the lender will sanction a loan amount.

On the other hand, your SIPs or lump sum investments go on as before, and your holding of the mutual fund stays intact. But there is an exception too, in case you don’t repay the loan at the due time, then the lender can redeem your pledged units to get back the loan amount. But if you pay the loan on time, the lender releases the lien, and your mutual fund units are returned to you entirely.

2. Loan Amount You Can Obtain

The loan amount you can borrow in a Loan Against Mutual Funds totally depends on the type of mutual funds you are offering as collateral and the lending institutions’ policies. Minimum and maximum loan amounts are specified by banks and NBFCs, and these can vary from lender to lender.

Generally, for Equity Mutual Funds, the lender can offer you the loan up to 50% of the current market value of the units that you’ve pledged.

Whereas, for the Debt Mutual Funds, the loan-to-value ratio is greater. Usually, this falls between 70%-80 % of the value of pledged units.

3. Rate of Interest

Compared to unsecured loans like personal loans, loans secured by mutual funds typically have lower interest rates because they are backed by your investment units.

Interest rates can vary depending on the lender’s policies, your credit score, and the category of mutual funds pledged.

Typically, if you enjoy a good credit record and are committing to high-value mutual funds, you can be assured of competitive interest rates, usually lower than credit cards or personal loans.

4. Loan Application Process

With the ZFunds App, availing a loan against your mutual fund holdings is quick and easy. You just simply have to follow these six steps, and you are good to go:

Step 1: Download the ZFunds App

Start by downloading the ZFunds smartphone app from the Google Play Store or the Apple App Store.

Step 2: Choose the Mutual Funds to Pledge

Now, select the mutual fund you want to use as collateral for the loan.

Step 3: One-Time KYC

Complete a quick and easy KYC registration with your PAN and Aadhaar card. This step is necessary to authenticate your identity and move forward with the further loan process.

Step 4: Lien Marking through OTP Authentication

Grant a lien on your mutual fund units by doing a safe OTP-based authentication through the Registrar and Transfer Agent.  

Step 5: Confirm Your Bank Account

For the next step, link and confirm your bank account digitally using e-mandate. This step helps in hassle-free disbursement and repayment tracking.

Step 6: Sign the Loan Agreement Digitally

For the last step, read the agreement carefully and digitally sign the loan agreement—no physical paper is required.

That's it, with 6 simple steps, your overdraft facility will be enabled, and you can begin drawing funds as and when required, without breaking your investments.

To Wrap it Up

In case of a sudden need for funds, taking a loan against mutual funds can be a smarter choice than redeeming your investments. ZFunds offers a fast and modern solution to manage financial needs without disturbing your investment portfolio. With its 100% digital process, ZFunds makes it simple and convenient to get a loan against your mutual funds.

With ZFunds, you can have your loan sanctioned in just under 4 hours, that also at a low interest rate of 10.49% p.a. It is a more affordable and viable option than most traditional loans. ZFunds stands out from the rest because it emphasizes security, transparency, and convenience for users.

Apply now, and experience a secure, seamless, and smart process to get a loan against mutual funds.