Monthly Interest on LAMF – How It Works?

Taking a loan against your mutual fund investments sounds straightforward, but most people aren’t sure what the monthly payment actually looks like. Is it like an EMI? Do you pay the principal every month? What if you borrow more or repay early?

This guide breaks down exactly how monthly payments work on a Loan Against Mutual Funds (LAMF), including the formula, real examples, how partial repayments affect what you owe, and how the cost stacks up against a personal loan or credit card.

LAMF Is Not an EMI Loan: Here’s the Difference

Most loans, home loans, car loans, and personal loans use an EMI (Equated Monthly Instalment) structure. Each month, you pay a fixed amount that covers both interest and a portion of the principal, until the loan is fully paid off.

LAMF works differently. It is a revolving credit line, not a term loan. Your monthly payment covers only the interest on the outstanding amount you’ve borrowed. The principal has no fixed repayment schedule; you repay it whenever you want, in any amount, within the 3-year loan tenure.

What this means in practice: your monthly obligation is low and predictable, and you stay in full control of when and how you repay the principal.

How Is Monthly Interest Calculated?

The formula to calculate monthly LAMF interest is:

Monthly Interest = Outstanding Amount × Annual Rate ÷ 12 ÷ 100

At an interest rate of 9.99% p.a., here is what monthly payments look like across different loan amounts:

Disclaimer: Interest rates are subject to change. The monthly payment covers only interest; the principal is repaid separately at any time during the 3-year tenure.

Apply for a Loan Against Mutual Funds on smallcase, interest starting at 9.99% p.a., no EMI pressure, and disbursement within 2 working hours. Check your credit limit on the smallcase app.

How Partial Repayments Affect Your Monthly Payment

Every time you repay part of the principal, your outstanding balance drops, and so does the interest charged the following month. There are no prepayment charges, so you can repay as frequently as you like.

Example: You borrow ₹1,00,000 in January. Monthly interest ≈ ₹833. You repay ₹50,000 in February. Your outstanding drops to ₹50,000, and from March onward, your monthly interest is halved to approximately ₹416.

This flexibility makes LAMF particularly useful when your cash flows are irregular, for instance, if you’re self-employed or have a lump sum incoming in a few months. You can borrow what you need now, pay minimal monthly interest, and clear the principal when funds arrive.

Repay, Withdraw Again: How the Credit Line Works?

LAMF is a revolving facility. Once you repay the principal (in full or in part), your credit limit is restored by the amount repaid. You can withdraw funds again for a minimum of ₹1,000 without going through the application process again.

When no amount is outstanding, you pay zero interest. Interest accrues only on what you’ve actually withdrawn and not yet repaid.

Example: Your credit limit is ₹3,00,000. You withdraw ₹1,00,000 in January and repay it in March. Your full ₹3,00,000 limit is restored in March, and you pay zero interest from that point until your next withdrawal.

How and When Is Monthly Interest Debited?

Monthly interest is auto-debited from your linked bank account on the due date each month. You set this up as an e-mandate during the application process, so there’s nothing to track or transfer manually.

A few things to keep in mind:

• Bounce charge: ₹1,200 per failed auto-debit.
• Overdue interest: 1.5% per month on any overdue interest amount.
• Principal repayment: Done manually via the ‘Repay Cash’ button on your Loan Dashboard in the smallcase app, no auto-debit for principal.

LAMF vs Personal Loan vs Credit Card: Cost Comparison

To understand what you’re actually saving with LAMF, it helps to compare monthly costs across the three most common borrowing options for the same amount.

Monthly interest on ₹1,00,000 borrowed:

Disclaimer: Rates for personal loans and credit cards are indicative ranges and vary by lender and borrower profile. This comparison is for informational purposes only and does not constitute financial advice.

The cost advantage of LAMF is most evident over several months. On a ₹5,00,000 borrowing held for 6 months, the difference in interest paid between LAMF and a mid-range personal loan (16% p.a.) is approximately ₹15,000, before accounting for the EMI principal load.

Beyond the rate, LAMF also has structural advantages over both alternatives:

• No fixed EMI: You’re not committed to a monthly principal repayment, which improves cash flow flexibility.
• No credit score impact: No hard CIBIL check is run during the LAMF application.
• No foreclosure penalty: Repay whenever you want with zero charges. Personal loans typically charge 2–5% of the outstanding for early closure.
• Investments stay intact: Your mutual funds remain pledged but continue to earn returns throughout the loan tenure.

Don’t sell your investments to meet short-term needs. With LAMF on smallcase, pay only for what you borrow, starting at ₹208/month on a ₹25,000 loan. Apply now on the smallcase app.

Frequently Asked Questions