5 Things to Know Before You Apply for a Loan Against Securities
A Loan Against Securities (LAS) is one of the most cost-effective ways to access liquidity without liquidating your investment portfolio. By pledging eligible securities, mutual funds, bonds or stocks, you can get a revolving credit line at lower interest rates than a personal loan, with no fixed EMIs and no impact on your CIBIL score.
But like any credit product, LAS comes with terms, risks, and conditions that are worth understanding before you apply. Knowing how LTV ratios work, what happens when market values fall, which securities are eligible, and how repayment is structured can help you borrow smarter and avoid surprises during the loan tenure.
At smallcase, LAS is currently offered in two forms: Loan Against Mutual Funds (LAMF) and Loan Against Stocks. This article covers everything you need to know before applying for either product.
What is a Loan Against Securities (LAS)?
A Loan Against Securities is a secured loan where you pledge your investments, mutual funds, stocks, bonds, or other eligible securities as collateral with a lender. The lender places a lien on your holdings and sanctions a credit limit based on a percentage of their market value. This percentage is called the Loan-to-Value (LTV) ratio.
Your pledged securities stay in your folio or demat account throughout the loan tenure. They continue to earn returns, NAV appreciation in mutual funds, dividends, and price appreciation in stocks. You just cannot sell or redeem the pledged holdings until the loan is fully closed.
How to Apply for a Loan Against Securities on smallcase?
- Log in to smallcase Credit: Visit smallcase Credit and click on ‘Loan Against Mutual Funds’ or ‘Loan Against Stocks’ to check your credit limit.
- Check eligible stocks: View your Zerodha demat holdings and see which stocks and ETFs are available for pledging.
- Select stocks to pledge: Choose the securities you want to use as collateral and confirm your credit limit.
- Link your bank account: Add your bank details for disbursement and set up an e-mandate for monthly interest auto-debit.
- Pledge your stocks: Selected shares are lien-marked through the depository while remaining in your Zerodha demat account.
- Sign the loan agreement: Review the terms, verify with OTP, and sign the agreement online.
- Receive the loan amount: The amount is credited directly to your linked bank account after signing.
Things to Know Before Applying for a Loan Against Securities
1. Check Your Credit Limit
Connect your Zerodha demat account to see which of your stock and ETF holdings are eligible for pledging, and what credit limit they support. This step gives you a clear picture of how much you can borrow before committing to anything. It does not affect your CIBIL score. Here’s how the LTV (Loan-to-Value) ratio works on smallcase:
| MF Type | Credit Limit (LTV) | Example (₹2L invested) |
| Equity Mutual Funds | 45% of market value | Credit limit = ₹90,000 |
| Debt Mutual Funds | 75% of market value | Credit limit = ₹1,50,000 |
Over 8,000 fund schemes are eligible across equity, debt, and hybrid categories, but the fund must be on Bajaj Finance’s approved list. The following are not eligible:
- ELSS funds currently under the 3-year lock-in period
- Funds that are already pledged elsewhere
- Unlisted or unapproved schemes
If your credit limit shows ₹0, it’s likely because all your funds fall into one of the above categories, or your total MF value is too low.
2. Check Your Eligibility
The eligibility criteria for LAMF on smallcase are simple:
- You must be an Indian citizen.
- You must be between 18 and 70 years old.
- You should have an active PAN card.
- You must have eligible mutual fund holdings (see credit limit section below).
- Joint account holders are not eligible; the loan can only be applied for by the primary account holder.
Unlike with personal loans, your CIBIL score is not checked during the application process. This means applying does not affect your credit score in any way.
3. Know the Interest Rate, Fees, and Total Cost
LAMF on smallcase starts at 9.99% p.a., and crucially, interest is charged only on the amount you actually withdraw, not on your full credit limit.
Example: If your credit limit is ₹1,00,000 and you withdraw only ₹50,000, you pay interest only on ₹50,000. Monthly interest = ₹50,000 × (9.99% / 12) ≈ ₹416.
Here is the complete fee structure:
| Fee Type | Amount |
| Interest Rate | 9.99% p.a. (on outstanding amount only) |
| Processing Fee | ₹999 or 1% of loan amount (max ₹4,999) + GST |
| Late Payment Interest | 1.5% per month on overdue interest |
| Bounce Charges | ₹1,200 per bounce |
| Demat Pledge Charges | ₹50 + GST (Bajaj Finance) + ₹32 + GST (Zerodha) per security |
| Part-Prepayment / Foreclosure | NIL |
| Lien Removal (post-loan closure) | NIL |
There are no hidden charges. The loan is fully paperless, and applying does not trigger a hard CIBIL inquiry.
4. Understand the Loan Tenure and How Repayment Works
LAMF on smallcase has a tenure of 36 months (3 years). Here is how the repayment structure works:
- You pay monthly interest via auto-debit from your linked bank account. Interest is charged only on your outstanding principal.
- You can repay the principal at any time; there are no prepayment charges.
- Once you repay (fully or partially), your credit line is restored. You can withdraw a minimum of ₹1,000 again without reapplying.
- You can close the loan at any time with zero foreclosure charges.
- If the full outstanding amount is not repaid within 3 years, Bajaj Finance may liquidate the pledged mutual funds to recover the amount.
This overdraft structure makes LAMF very flexible. You are not locked into fixed EMIs. As your cash flow improves, you can repay and reduce interest costs immediately.
5. Know the Risks: Especially LTV Breach
The most important risk to understand before taking a Loan Against Mutual Funds is what happens when the value of your pledged funds drops.
Because your loan is tied to the market value of your mutual funds, a fall in NAV reduces your eligible loan limit. If the outstanding loan exceeds the allowed LTV, this is called an LTV breach.
Example: You pledged equity MFs worth ₹1,00,000. Your eligible loan is 45% = ₹45,000. If the fund value drops to ₹90,000, the eligible limit drops to ₹40,500. If your outstanding loan is still ₹45,000, you are in breach by ₹4,500.
What happens in an LTV breach:
- Bajaj Finance notifies you.
- You have 7 days to repay the excess amount and bring the LTV back within limits.
- If you do not repay within 7 days, Bajaj Finance may liquidate (sell) your pledged mutual funds to recover the outstanding amount.
Other risks to be aware of:
- You cannot sell, redeem, or partially unpledge your funds while the loan is active. All units are released only when the loan is fully closed.
- Missing a monthly interest payment incurs late payment interest at 1.5% per month on the overdue amount, plus a bounce charge of ₹1,200 if the auto-debit fails.
- If you pledge all eligible funds and markets fall, you may face a simultaneous loss in portfolio value and a margin call.
What Happens to Your Mutual Funds After Pledging?
This is one of the most common concerns, and the answer is largely reassuring:
- Your funds are lien-marked in favour of Bajaj Finance. They remain in your folio; they are not transferred anywhere.
- You continue to earn returns, dividends, and NAV appreciation on the pledged units.
- You can continue making new investments in the same funds.
- The tax treatment of your funds does not change, unless the funds are eventually sold or liquidated by the lender.
- Partial unpledging is not possible. All units are released only on full loan closure.
Should You Break Your Investments or Take a Loan?
Selling your investments to meet a short-term cash need has real costs, capital gains tax, lost compounding, and the friction of re-entering the market at an unknown price. A loan against securities avoids all of these.
LAS makes sense when:
- You need funds for a few months and have a clear repayment plan.
- Your portfolio is in a growth phase, and selling would mean locking in gains and paying tax.
- The loan’s interest cost is lower than the expected return from staying invested.
LAS may not be suitable when:
- Your portfolio is concentrated in volatile small-cap or sector-specific funds, which increases the risk of an LTV breach.
- You don’t have a visible source of repayment within the tenure.
- The loan amount needed is significantly higher than 45-75% of your portfolio value.
To Wrap Up
A Loan Against Securities can be a powerful financial tool, but only when used with a clear understanding of how it works. Knowing your eligible securities, applicable LTV limits, market-linked risks, and repayment obligations before applying puts you in a much stronger position to use the credit line effectively.
At smallcase, you can avail a Loan Against Mutual Funds (LAMF) and a Loan Against Stocks, both offering disbursement within 2 working hours, zero foreclosure charges, and no hard CIBIL inquiry.
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
Frequently Asked Questions About Things to Know Before Applying for LAS
A Loan Against Securities is a secured loan where you pledge investments, mutual funds, stocks, or bonds as collateral to borrow money without selling them. The lender places a lien on your holdings and sanctions a credit limit based on their market value. You retain ownership throughout the loan tenure. On smallcase, this product is available as a Loan Against Mutual Funds (LAMF) in partnership with Bajaj Finance Limited, with a minimum loan of ₹25,000 and interest starting at 9.99% p.a.
LAMF works well when you need short-term funds and want to stay invested, for instance, during a medical emergency, a business opportunity, or a large planned expense like a home renovation. It is most effective when you have a clear repayment plan before the 3-year tenure ends, and when your expected returns from staying invested are higher than the cost of borrowing at 9.99% p.a. It is not advisable if you have no visible repayment source or if your portfolio is heavily concentrated in volatile funds.
Disclaimer: This does not constitute investment or financial advice. Whether a loan is right for your situation depends on your individual financial circumstances. Please consult a financial advisor before making borrowing decisions.
No, your CIBIL score is not affected. LAMF on smallcase does not involve a hard credit inquiry during the application or credit limit check. Unlike personal loans or credit cards, there is no credit bureau pull, so your score remains unchanged throughout the process, whether you apply, are approved, or even foreclose the loan early.
Yes, fully. Your mutual funds remain in your folio after pledging and continue to generate NAV appreciation and dividends as usual. The lien only prevents you from selling or redeeming the pledged units; it has no effect on ongoing returns. For example, if you have pledged an SBI Bluechip Fund or an HDFC Flexi Cap Fund, those units will continue growing in value while serving as collateral. You can also continue making fresh SIP investments in the same funds.
Over 8,000 mutual fund schemes across equity, debt, and hybrid categories are eligible, spanning most major AMCs, including SBI Mutual Fund, HDFC Mutual Fund, ICICI Prudential, Aditya Birla Sun Life, Axis Mutual Fund, Kotak Mutual Fund, Nippon India, and others. The fund must be on Bajaj Finance Limited’s approved list. Funds not eligible include ELSS schemes currently under the 3-year lock-in, funds already pledged elsewhere, and unlisted or unapproved schemes. Debt funds generally offer a higher LTV (75%) compared to equity funds (45%).
Disclaimer: The approved list of eligible schemes is maintained by Bajaj Finance Limited and is subject to change. Please verify eligibility at the time of application on smallcase.
When fund values fall, your eligible credit limit reduces proportionally. If your outstanding loan exceeds the allowed LTV, 45% for equity funds, 85% for debt funds, this is called an LTV breach. Bajaj Finance will notify you, and you will have 7 days to repay the excess and bring the outstanding within limits. If you do not act within 7 days, Bajaj Finance may liquidate (sell) some or all of your pledged mutual funds to recover the outstanding balance. This risk is higher for equity-heavy portfolios during market downturns.
Disclaimer: Mutual fund values are subject to market risk. Market fluctuations are outside the control of smallcase or Bajaj Finance Limited. Borrowers are responsible for monitoring their loan-to-value ratio regularly and maintaining it within permissible limits.
Yes, you can close the LAMF loan at any time during the 3-year tenure. There are no foreclosure charges and no part-prepayment penalties. Once all dues are cleared, outstanding principal plus any accrued interest, your pledged mutual fund units are released from lien and the loan account is closed. You can raise a closure request directly from the Loan Dashboard on the smallcase app.
The interest rate starts at 9.99% p.a., charged only on the principal amount currently withdrawn, not on the full credit limit. A one-time processing fee of ₹999, or 1% of the loan amount (up to ₹4,999), plus GST, applies at the time of disbursal. If the monthly interest auto-debit fails, a bounce charge of ₹1,200 per instance is levied. Overdue interest accrues additional late-payment interest at 1.5% per month. Demat pledge charges are ₹50 + GST (Bajaj Finance) and ₹32 + GST (Zerodha) per security. Part-prepayment, foreclosure, and lien removal after loan closure are all free.
Yes. LAMF on smallcase functions as a revolving credit line, similar to an overdraft facility. You can withdraw funds as needed, repay the principal when you have surplus cash, and withdraw again, all without reapplying. The minimum withdrawal amount is ₹1,000. Interest is charged only on the amount currently outstanding, so repaying sooner reduces your interest cost immediately. This flexibility makes LAMF useful for managing irregular or seasonal cash flow needs.
ELSS (Equity Linked Savings Scheme) funds currently in the mandatory 3-year lock-in period are not eligible for pledging. This applies to ELSS schemes from all AMCs, such as SBI Long Term Equity Fund, Aditya Birla Sun Life Tax Relief 96, Axis Long Term Equity Fund, or HDFC TaxSaver. Once the lock-in period for the invested units has expired, those units may become eligible, provided they are on Bajaj Finance’s approved list at that time.
The application is fully paperless and digital. You will need your PAN card (if not already registered on smallcase) and the mobile number or email address linked to your mutual fund folios. For CAMS-serviced funds, use the registered email address; for KFin-serviced funds, use the registered phone number. If you have holdings spread across multiple email IDs or phone numbers, enter all of them to get an accurate credit limit. No physical documents need to be submitted or couriered.
No, partial unpledging is not supported on LAMF via smallcase. All pledged mutual fund units are held under lien for the entire duration of the loan and are released only after the loan is fully closed, meaning all outstanding principal and interest have been repaid. If you need to free up specific units before that, you will need to foreclose the entire loan first, which can be done at zero charges.
After you complete the application, import holdings, select funds, link a bank account, set up an e-mandate, pledge funds, and digitally sign the loan agreement, the loan amount is credited to your linked bank account within 2 working hours. The entire process is online and requires no branch visits or physical document submission. If disbursal does not happen within 2 working hours of signing, contact smallcase support immediately.
The minimum loan amount on LAMF via smallcase is ₹25,000. Your eligible credit limit is determined by the type and market value of mutual funds you pledge, 45% of equity fund value and 75% of debt fund value. To qualify for the minimum loan of ₹25,000, you would need eligible equity MF holdings worth at least approximately ₹56,000 or eligible debt MF holdings worth at least approximately ₹34,000.
A credit limit of ₹0 typically means one or more of the following: all your mutual funds are ELSS schemes still under the 3-year lock-in, your funds are already pledged elsewhere, your holdings are not on Bajaj Finance’s approved list, or your total eligible MF value is too low to meet the minimum threshold. To resolve this, check that you have entered all email IDs and phone numbers linked to your folios, download your Consolidated Account Statement from camsonline.com to verify all holdings, and confirm which schemes are on the approved list.
