Loan Against Mutual Funds: How It Works on smallcase

At smallcase, we have always been committed to building a simple investment experience for retail investors. More than 80 lakh users have supported us in this endeavour. Now we are taking it further, introducing Loan Against Mutual Funds (LAMF) on smallcase, so you can unlock liquidity from your existing MF portfolio without selling a single unit.

What is a Loan Against Mutual Funds (LAMF)?

A Loan Against Mutual Funds lets you borrow money by pledging your existing MF investments as collateral. Your funds stay invested and continue earning returns, you pay monthly interest only on the amount you withdraw, and repay the principal whenever you choose within the 3-year tenure. There are no foreclosure charges and no hard CIBIL inquiry.

How to Apply for LAMF on smallcase?

The entire process is paperless, digital, and completes in under 5 minutes on the app:

1. Log in to smallcase Credit: Visit smallcase Credit and click on Against Mutual Funds to check your credit limit.
2. Check eligible funds: View SBI mutual funds and other eligible holdings available for pledging.
3. Select funds to pledge: Choose funds as collateral and check the credit limit.
4. Link your bank account: Add bank details for disbursement and set up an e-mandate.
5. Pledge your mutual funds: Selected units are lien-marked while staying in your folio or demat account.
6. Sign the loan agreement: Review, verify with OTP, and sign online.
7. Receive the loan amount: The amount is usually credited within 2 working hours after signing.

You can pause mid-application and resume anytime from where you left off. Zero documents, zero branch visits.

Eligibility Criteria for LAMF

• Age: You must be between 18 and 70 years old. Unlike many secured loans that exclude older applicants, LAMF is available well into retirement age, making it useful for retirees with substantial MF portfolios but limited income.
• Residency: Only Indian residents are eligible. NRIs with Indian MF folios are currently not covered under this offering.
• Employment: Both salaried and self-employed individuals are eligible to apply. There is no requirement to submit salary slips, ITRs, or proof of business; your MF holdings are the only requirement.
• MF Holdings: Your mutual fund units must be held in non-demat (statement-based) form and serviced by CAMS or KFintech. Demat-form mutual fund holdings are not eligible for LAMF on smallcase. The folio must also be in your individual name; joint holdings are not eligible.
• Credit Score: No minimum CIBIL score or income proof is required. This makes LAMF accessible to borrowers who may have a thin credit history or have not taken a formal loan before.

Not Eligible: Joint account holders are currently not eligible. ELSS funds under a 3-year lock-in, already-pledged units, and unlisted MF schemes cannot be used as collateral.

Understanding Your Mutual Fund Credit Limit

Your credit limit is calculated as a percentage of your pledged MF value, this is called the Loan-to-Value (LTV) ratio:

Over 8,000 approved MF schemes across equity, debt, and hybrid categories are eligible. You can check your exact credit limit on the smallcase app, no CIBIL check, no commitment required.

What Happens to Your Mutual Funds After Pledging?

This is the most common concern, and the answer should reassure you:

• Funds stay in your folio: A lien is placed by the lender as a security marker, but your mutual fund units are not moved or sold. They remain in your CAMS or KFintech folio, exactly where they were before you applied.
• Returns continue: Dividends declared by the fund are credited to you as usual, and your NAV appreciation continues to accrue. Pledging has no effect on the economic benefits of your investment.
• New investments allowed: You are free to start new SIPs or make lump-sum purchases in the same or any other fund. The lien covers only the specific units you pledged, not your entire MF portfolio.
• You cannot sell pledged units: This is the key constraint. Pledged units are locked, they cannot be redeemed, transferred, or switched until the outstanding loan is fully repaid and the lien is released.
• No partial unpledging: You cannot release a portion of the pledged units mid-loan to free up some holdings. The lien is lifted only when the entire loan balance is cleared, and the account is closed.

Risk Disclosure: If your MF value falls significantly, your outstanding loan may exceed the permitted LTV ratio. You will be notified to repay the excess within 7 days. If you do not, the lender may liquidate pledged units to recover the outstanding amount. Mutual fund investments are subject to market risk. Please read all scheme-related documents carefully before pledging.

What Can You Use LAMF For?

• Medical emergencies: Hospital bills don’t wait for markets to recover. With disbursement in 2 working hours, LAMF gives you immediate access to funds without forcing you to redeem long-term investments at potentially unfavourable NAVs.
• Wedding expenses: A large one-time expense doesn’t have to mean a permanent dent in your portfolio. Borrow what you need, let your SIPs keep running, and repay when the dust settles, often in a few months.
• Home loan down payment: Banks typically finance only 75–80% of a property’s value. The remaining 20–25% can be bridged with an LAMF, so you don’t have to liquidate equity investments that may be in the middle of a growth cycle.
• Higher education fees: Term fees and admission deposits are large, periodic, and time-sensitive. A revolving LAMF credit line lets you draw funds each semester and repay between terms, instead of taking a full education loan upfront.
• Business working capital: For self-employed individuals and small business owners, unsecured working capital loans can carry rates of 18–24% p.a. A LAMF against your personal MF holdings can provide cheaper credit while your business cash flows catch up.
• Replacing high-cost debt: If you are currently servicing a personal loan or revolving credit card balance at 18–36% p.a., a LAMF at 9.99% p.a. can help you clear the expensive debt first, cutting your monthly interest burden significantly.

Fees & Charges

The following table provides an overview of the fees and charges of LAMF by smallcase:

Managing and Closing Your Loan

LAMF works like a revolving credit line, not a one-time disbursement:

• Repay principal anytime, no penalty: Unlike a personal loan with a fixed EMI schedule, there is no minimum repayment date for the principal. Whenever you have surplus funds, a bonus, a freelance payment, or a maturity, you can put it toward the principal and your credit limit is restored immediately.
• Withdraw again without reapplying: Once repaid, the available credit can be redrawn any time you need it, with a minimum withdrawal of ₹1,000. You do not go through the application process again; the credit line stays active for the full 36-month tenure.
• Interest only on what you use: If your credit limit is ₹1,00,000 but you have only withdrawn ₹40,000, interest is charged only on ₹40,000. The remaining ₹60,000 sits available at zero cost, like a financial safety net you don’t pay to hold.

Example: Credit limit: ₹1,00,000.

You withdraw ₹50,000 → monthly interest = ₹50,000 × 9.99% ÷ 12 = ₹416.

You repay ₹30,000 → outstanding = ₹20,000 → next month’s interest = ₹167.

You pay zero interest on the ₹50,000 you never touched.

Closing the Loan

Close anytime with zero foreclosure charges. Once all dues are cleared, pledged units are unpledged, and your loan account is closed. Raise a closure request from the Loan Dashboard in the smallcase app.

To Wrap Up…

Your mutual funds represent years of disciplined investing. A sudden financial need shouldn’t force you to undo that progress. With Loan Against Mutual Funds on smallcase, you get access to funds when you need them, without redeeming your investments, without a lengthy approval process, and without paying interest on money you haven’t even used. Your portfolio stays intact, continues to compound, and you stay in control. Whether it’s a medical emergency, a down payment, or simply a smarter way to handle a short-term cash crunch, LAMF lets your investments do double duty: grow your wealth and fund your life, at the same time. Check your MF credit limit on the smallcase app today. It takes under a minute, requires no documents, and won’t affect your CIBIL score.

All About Loan Against Securities & Loan Against Mutual Funds on smallcase – 

smallcase offers quick and easy disbursement of loans against mutual funds ( LAMF). Explore all about the eligibility criteria, documents required, features, and benefits of a Loan against mutual funds on smallcase

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