Pledge your Mutual Fund units or bonds and borrow against them instead of selling. Your investments stay in your name and continue to move with the market, and you pay interest only on the amount you actually use. DhanTarang is a referral partner for Bajaj Finance Limited, who provide the loan, assess eligibility and set the rate.
A Loan Against Mutual Funds (LAMF) is a secured loan where you pledge your Mutual Fund units as collateral and borrow against their value, without selling them. The units stay in your own name and continue to gain or lose value with the market, but a lien is marked on them so they cannot be redeemed until the loan is repaid.
It is usually structured as a term loan. A limit is sanctioned against your pledged holdings, you draw only what you need, and interest is charged only on the amount drawn — not on the full sanctioned limit.
The main reason investors use it is to avoid breaking a long-term investment for a short-term need. Redeeming units means exiting the market, triggering capital gains tax, and losing the compounding on that money. A loan against the same units leaves the investment intact.
You choose which holdings to offer as collateral. Not every scheme is eligible, and the lender publishes an approved list.
The lender marks a lien on the units through the Registrar and Transfer Agent, CAMS or KFintech. The units remain in your name and in your folio throughout.
The lender sets your credit limit as a percentage of the current value of the pledged units. That percentage is the loan-to-value ratio, and it differs by scheme category.
Interest applies only to the amount you actually use, usually calculated daily, so an unused limit costs you nothing in interest.
You can repay and redraw within the limit during the tenure. Once the loan is fully repaid, the lien is removed and the units are free again.
The amount depends on what you pledge. Debt schemes are less volatile than equity schemes, so lenders generally allow a higher percentage against them.
| What You Pledge | Loan-to-Value | Why |
|---|---|---|
| Equity Mutual Funds | As assessed by the lender | Equity values move more sharply, so the lender keeps a larger cushion |
| Debt Mutual Funds | As assessed by the lender, generally higher than equity | Lower volatility means a smaller cushion is needed |
Your limit is calculated on the value of the units on the day of sanction, and the lender reviews it as market values change. Minimum and maximum loan amounts, tenure and eligible schemes are set by the concerned NBFC.
The units remain in your name and continue to move with the market. You are not exiting your holding, so you keep any appreciation and you do not trigger capital gains tax the way a redemption would.
The facility works as an overdraft. A limit is sanctioned, you draw what you need, and interest applies only to the drawn amount. An unused limit costs nothing in interest.
The application, KYC and lien marking are handled online through the lender, and the lien is placed through CAMS or KFintech against your existing folio.
While the lien is marked, the pledged units cannot be redeemed, switched or transferred. A SIP in the same scheme can usually continue, but the pledged units are locked until the loan is repaid and the lien is released.
Your limit is based on the value of the pledged units. If the market falls and that value drops, the lender can ask you to pledge additional units or repay part of the loan to restore the ratio.
If the loan is not serviced, or a top-up call is not met, the lender can invoke the lien and sell the pledged units to recover the amount due. This is the point most borrowers overlook.
Interest accrues on the drawn amount, and there may be processing, renewal and lien-marking charges. Interest on a loan taken for personal use is not tax-deductible. Borrow only what you can service from your regular income.
If you need money and you hold Mutual Funds, there are three routes. They differ in cost, in speed and in what you give up.
| Feature | Loan Against Mutual Funds | Redeeming Your Units | Personal Loan |
|---|---|---|---|
| Collateral | Your pledged Mutual Fund units | None — you are selling | None — unsecured |
| Investment | Stays invested and keeps moving with the market | Exited. You are out of the market. | Stays invested and untouched |
| Capital gains tax | Not triggered — no sale takes place | Triggered on the units sold | Not triggered |
| Interest cost | Charged on the drawn amount only | None — it is your own money | Charged on the full amount from day one |
| Typical rate | Lower than unsecured borrowing, because it is secured | Not applicable | Higher, because there is no collateral |
| Main risk | A market fall can trigger a top-up call, and unmet calls can lead to the units being sold | You lose future compounding on that money | No collateral at risk, but the cost is higher |
If the need is short-term and your Mutual Funds are held for a long-term goal, a loan against them usually costs less than breaking the investment. If the need is long-term, repaying a loan from the same portfolio you are borrowing against rarely works out.
A medical expense, a fee payment, a wedding or a business working-capital gap — where the need is temporary and selling a long-term holding to meet it would cost you more than the interest.
Money is coming, but not yet. A maturity, a bonus or a sale is due, and the loan bridges the period until it arrives.
Because interest applies only to what you draw, some investors keep a sanctioned limit in place as a backup instead of holding a large idle cash balance.
A loan against your portfolio is still borrowing. It is not suited to funding regular expenses, to repaying other loans, or to investing further. If the repayment is not visible from your regular income, the answer is usually no.
The loan is provided by the NBFC, who assess your eligibility, set the interest rate and the loan-to-value ratio, mark the lien and sanction the limit. DhanTarang is a referral partner and does not lend, does not set the rate and does not approve applications.
We refer you to the lender and stay available for questions through the process. Eligibility, the interest rate, the loan-to-value ratio and the sanction are decided by them, not by us.
A loan against Mutual Funds is a secured loan where you pledge your Mutual Fund units as collateral and borrow against their value without selling them. A lien is marked on the units through the Registrar, CAMS or KFintech, but the units stay in your own name and continue to move with the market. The interest applies only to the amount you actually draw.
The amount is a percentage of the current value of the units you pledge, known as the loan-to-value ratio. Lenders generally allow a higher percentage against Debt schemes than against Equity schemes, because Debt schemes are less volatile. The exact ratio, the minimum and maximum amounts and the list of eligible schemes are set by the lender.
No. While the lien is marked, the pledged units cannot be redeemed, switched or transferred. They stay in your name and continue to gain or lose value with the market, but they are locked until the loan is repaid and the lien is released. A SIP into the same scheme can usually continue, and those new units are not pledged unless you pledge them.
Your limit is based on the value of the pledged units, so if that value falls the lender can ask you to pledge additional units or repay part of the loan to restore the required ratio. If you do not meet that call, or the loan is not serviced, the lender can invoke the lien and sell the pledged units to recover the amount due.
No. The interest is charged only on the amount you actually draw, usually calculated on a daily basis. If you have a sanctioned limit but have not drawn from it, no interest accrues on the unused portion. Processing, renewal or lien-marking charges may still apply.
It depends on the need. If the requirement is short-term and the units are held for a long-term goal, borrowing usually costs less than redeeming, because you stay invested and you do not trigger capital gains tax on a sale. If the requirement is long-term, or the repayment is not comfortably visible from your regular income, redeeming or a different route may be the better answer.
Each lender publishes an approved list of schemes, and not every scheme is on it. ELSS units still within their three-year statutory lock-in are generally not eligible, because the lock-in prevents the lien from being enforced. Check the current eligible list with the lender before applying.
Yes, bonds can generally be pledged alongside Mutual Fund units, subject to the lender accepting the issuer and the rating. The loan-to-value ratio applied to bonds is assessed separately from that applied to Mutual Fund units.
Interest on a loan taken for personal use is not tax-deductible. Deductibility depends entirely on the purpose the borrowed money is put to and on your own circumstances, so please consult a qualified tax professional rather than assuming a deduction is available.
The loan is provided by the NBFC. They assess eligibility, set the interest rate and the loan-to-value ratio, mark the lien and sanction the limit. DhanTarang Fintech Pvt. Ltd. is just a referral partner. We help you work out whether pledging makes sense and which holdings are eligible, and we refer you to the lender. We do not lend, set rates or approve applications.
If you have decided to pledge, the application is completed on the lender's website. If you would rather check first which of your holdings are eligible and whether borrowing is the right call, speak to our team before you apply.
