How to Apply for Loan on Mutual Funds with smallcase?
Loan Against Mutual Funds (LAMF) is a facility that allows investors to unlock liquidity without redeeming their mutual fund investments. By pledging your mutual fund units as collateral, you can avail a loan to meet short-term financial needs while continuing to benefit from potential market gains.
This article will explore how to apply for a loan against mutual funds via smallcase, the eligibility criteria, comparison with other types of loans and more.
What is Loan Against Mutual Funds?
Loan Against Mutual Funds (LAMF) is a type of secured loan where you pledge your mutual fund units as collateral to borrow money from a financial institution. Instead of redeeming your investments—potentially at an unfavourable time—you can continue to stay invested while accessing short-term liquidity. smallcase offers a digital loan against mutual funds at a competitive interest rate of 10.5% – 10.9% p.a.
You can learn more about the eligibility criteria for LAMF here – ‘LAMF Eligibility and Documents Required’.
How to Take Loan Against Mutual Funds on smallcase?
The loan against mutual fund process at smallcase is simple and fully digital. Just follow these easy steps:
- Open the smallcase app/web and log in using your credentials.
- Head over to the ‘More’ section and click on ‘Loan Against Mutual Funds’.
- Click the ‘Apply Now’ button to begin your application.
- Enter your Date of Birth and PAN details to get started.
- You’ll receive an OTP—enter it to fetch your credit limit. Don’t worry, checking your limit on smallcase won’t affect your CIBIL score.
- Once your credit limit is visible, enter the loan amount you’d like to apply for and confirm it.
- Link your bank account where you wish to receive to loan against your pledged mutual funds.
- After signing the agreement, complete a quick video KYC as required by RBI guidelines.
- Review the details and sign the digital loan agreement. Once your application is verified, the funds will be transferred to your bank account—usually within 2 working hours.
Note: You can choose the eligible mutual funds you wish to pledge. Keep in mind that once these units are pledged, you won’t be able to sell them until the loan is fully repaid.
And that’s it! You’re all set to access funds without redeeming your mutual fund investments.
Eligibility Criteria for Loan Against Mutual Funds
To apply for loan against mutual funds online on smallcase, you’ll need to meet a few basic eligibility criteria:
- You can be either salaried or self-employed—there are no restrictions based on your profession or the nature of your work.
- You must be a resident of India.
- Your age should be between 18 and 65 years, and must have a valid PAN card that’s linked to your bank account.
- Most importantly, smallcase currently supports LAMF for both non-demat and demat mutual funds (currently, we support demat mutual funds held in Zerodha accounts only). Here is a list of mutual funds that are approved for LAMF at smallcase.
Meeting these requirements makes you eligible to pledge your mutual fund units and access funds without redeeming your investments.
LAMF vs Other Types of Loans
| Criteria | Loan Against Mutual Funds (LAMF) | Personal Loan | Car Loan | Home Loan | Education Loan |
| Collateral Required | Yes – Mutual Fund units (currently, smallcase supports demat mutual funds held in Zerodha accounts only) | No | Yes – Car | Yes – Property | Yes – Admission proof or collateral |
| Loan Purpose | Any – short-term liquidity needs | Any – flexible use | Purchase of a car | Purchase/construction/renovation of a home | Funding education-related expenses |
| Loan Amount | Based on mutual fund value (typically 50–70%) | Based on income and credit score | Up to 90% of car’s value | Up to 90% of the property value | Covers tuition, living, travel, etc. |
| Disbursal Speed | Within 2-3 working hours. | Within 2–3 days | Within 2–5 working days | Within 1–3 weeks | Within1–2 weeks |
| Processing Time | Minimal, especially via platforms like smallcase | Minimal if documents are in place | Requires car inspection and paperwork | Requires property valuation and documents | – |
Loan Against Mutual Funds: Fees and Charges
Here is a list of charges and fees applicable on loan against mutual funds via smallcase. To learn more about the particulars of this loan, please refer to our article on ‘Frequently Asked Questions (FAQs) About LAMF’
| Interest rate | 10.5% – 10.9% p.a. |
| Processing Fee | ₹999 or 1% of loan amount whichever is higher upto a maximum of ₹4999 (GST applicable)Example — loan less than 1 lakh: ₹999 + GST- loan between 1 to 5 lakh: 1% of sanctioned amt + GST- loan greater than 5 lakh: ₹4999 + GST |
| Late Payment of Interest (after bounced auto-debit) | Penal interest is charged at 2% per month |
| Demat pledge charges | Lender charges Rs. 50 + GST per demat security and Zerodha charges Rs. 32 + GST per demat security (applicable only when demat funds are being pledged). |
| Bounce charges (for failed interest payment) | Rs. 1200 per bounce |
| Part-prepayment charges | NIL |
| Foreclosure charges | NIL |
| Mandate inactive charges | NIL |
| Mandate verification (charged by your bank) | As charged by your bank (typically between Rs. 0 to Rs. 150) |
| Lien removal charges (if the loan is cancelled before disbursement) | NIL |
| Lien removal charges (if loan is canceled before disbursement) | Actual processing fee applicable |
| Collection/legal Charges (in case of default) | At actuals |
| Demat lien invocation charges (in case of liquidity) | 0.02% + Flat Rs. 5 + GST per demat security (Min Rs. 55 and Max Rs. 1005). This is applicable when Bajaj dilutes demat funds in cases of shortfall.. |
| Demat share transfer charges (PAYIN) | 0.02% + Flat Rs. 5 + GST per demat security (Min Rs. 55 and Max Rs. 1005) |
| Stamp duty | 0.015% on Demat lien invocation value |
Benefits of Loan Against Mutual Funds
- Quick Access to Funds: Get fast liquidity without needing to redeem your mutual fund investments, often within 2-3 working hours.
- Lower Interest Rates: LAMFs typically carry lower interest rates compared to unsecured loans like personal loans. Smallcase offers LAMF at a competitive interest rate of 10.5%.
- Retain Investment Ownership: Your mutual funds remain invested, allowing you to continue earning potential market returns. However, you cannot sell or redeem the pledged units before closing the loan.
- Flexible Loan Amount: Borrow based on the value of your pledged mutual funds—usually up to 50–70% of the fund’s current market value. At smallcase, you can avail a loan of 45% of the Loan-to-Value (LTV) against your equity mutual funds and 85% LTV against your debt mutual funds. To illustrate, if your equity mutual fund portfolio has a current value of ₹1L, you can secure a loan of ₹45,000.
- No End-Use Restrictions: Use the loan amount for any purpose—be it emergencies, business needs, or personal expenses.
- Minimal Paperwork: Especially when applied through smallcase, the process is digital mainly and hassle-free.
To Wrap It Up…
Applying for a Loan Against Mutual Funds (LAMF) is a smart way to unlock liquidity without disturbing your long-term investments. With smallcase, the process is quick, secure, and largely paperless—especially if your mutual funds are held in non-demat form or through a Zerodha demat account. Explore more about loan against mutual funds on smallcase here.
Frequently Asked Questions About LAMF
The default loan tenure for loan against mutual funds is 36 months. However, if you wish to close your loan earlier, you can do that at any time without any foreclosure charges with smallcase.
You can apply for a digital loan against mutual funds on smallcase app and web.
No. The pledged or lien-marked mutual funds units cannot be sold or redeemed without closing the loan. In case of a shortfall, principal repayment has to be done with a minimum amount equivalent to the shortfall amount. With that, the shortfall will be fulfilled and the LTV ratio will be maintained. In case you fail to fulfill the shortfall within 7 business days, smallcase holds the right to sell the lien-marked mutual funds to make good the shortfall.
The charges for a Loan Against Mutual Funds (LAMF) include a processing fee of ₹999 or 1% of the loan amount (whichever is higher), up to a maximum of ₹4,999 (GST applicable). Late payment interest is charged at 2% per month, and bounce charges are ₹1,200 per failed payment.
To apply for a Loan Against Mutual Funds (LAMF) on smallcase, you must be an Indian resident, aged 18-70, and have a valid PAN linked to your bank account. You can be salaried or self-employed. Currently, smallcase supports demat mutual funds held in Zerodha accounts only.
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
