How to Apply for a Loan Against Mutual Funds: Step-by-Step Guide
Applying for a loan against mutual funds can seem complex at first, but many platforms now offer a simple and paperless process. However, before applying, investors should check the eligibility criteria, understand which mutual funds can be pledged, and review the loan terms. This guide covers what you need to know about LAMF, including eligibility, eligible fund types, and the application process. It also explains how to apply for a loan against mutual funds through smallcase.
How to Apply for LAMF on smallcase?
The application process on smallcase is fully digital and paperless. Here is how it works:
- Log in to smallcase Credit: Visit smallcase Credit and select Against Mutual Funds.
- Check eligible mutual funds: View eligible mutual fund holdings available for pledging.
- Select funds to pledge: Choose the mutual fund units you want to use as collateral and check the credit limit.
- Link your bank account: Add bank details for disbursement and set up an e-mandate.
- Pledge your mutual funds: Selected units are lien-marked while staying in your folio or demat account.
- Sign the loan agreement: Review, verify with OTP, and sign online.
- Receive the loan amount: The amount is usually credited after successful signing and pledge confirmation.
Eligibility Criteria to Apply for a Loan Against Mutual Funds
To apply for LAMF on smallcase, you must meet the following criteria:
| Criterion | Requirement |
|---|---|
| Residency | Resident Indian |
| Age | 18 to 70 years |
| Employment type | Salaried or self-employed, no restrictions on profession |
| Account type | Individual account holders only; joint folios are not eligible |
| PAN | Active PAN card linked to your bank account |
| Mutual funds | Units must be in eligible schemes on the lender’s approved list; non-demat (CAMS/KFin registered) or Zerodha Demat units |
| Credit score | No hard CIBIL check; checking your limit does not affect your score |
| Minimum loan amount | ₹25,000 |
Fees and Charges to Apply for LAMF
The following fees apply to LAMF on smallcase. All charges are product-specific and subject to change. Review the schedule of charges in your loan agreement before signing.
| Charge | Amount / Rate |
|---|---|
| Interest rate | Starting at 9.99% p.a. on the outstanding drawn amount only |
| Processing fee | ₹999 or 1% of the loan amount (whichever is higher), up to a maximum of ₹4,999 + GST |
| Late payment interest | 1.5% per month on overdue interest |
| Bounce charges | ₹1,200 per failed auto-debit |
| Demat pledge charges | ₹50 + GST (lender) + ₹32 + GST (Zerodha) per demat security, applicable only when demat units are pledged |
| Part-prepayment charges | Nil |
| Foreclosure charges | Nil |
| Lien removal after full repayment | Nil |
| Lien removal if cancelled before disbursement (post-pledge, pre-sign) | Actual processing fee applicable |
| Demat lien invocation (if the lender liquidates demat units) | 0.02% + ₹5 + GST per demat security (min ₹55, max ₹1,005) |
| Stamp duty | 0.015% on demat lien invocation value |
| Collection / legal charges (on default) | At actuals |
Documents Required to Apply for a Loan Against Mutual Funds
The application process is fully digital and paperless. Borrowers generally need the following details:
- PAN: Used to fetch and verify mutual fund holdings.
- Registered Email ID: Required for CAMS-serviced mutual fund folios.
- Registered Phone Number: Required for KFintech-serviced mutual fund folios.
- Bank Account Details: Used for loan disbursal and monthly interest auto-debit.
- E-Mandate Setup: Required to enable auto-debit of monthly interest payments.
If you have multiple email IDs or phone numbers linked to different folios, you should enter all of them for an accurate credit limit calculation.
How the Credit Line Works After Disbursement
LAMF on smallcase is structured as an overdraft facility. The sanctioned credit limit is not disbursed as a lump sum. You draw from it as needed and pay interest only on the amount drawn and for the period it is outstanding.
Drawing from the Credit Line
Once the loan is active, go to the Loan Dashboard under the More tab on the smallcase app. From there, you can request a withdrawal of any amount within your available limit; the minimum withdrawal is ₹1,000. The amount is credited to your linked bank account.
Repaying and Redrawing
You can repay any part of the principal at any time; there are no prepayment charges. Once repaid, that amount is immediately restored to your available credit line. You can withdraw it again without submitting a new application, as long as the loan is still within its 3-year tenure.
Monthly interest is auto-debited from your linked bank account on the due date. Interest is calculated only on the outstanding drawn amount, not on the full credit limit.
LTV Breach: What Happens If Fund Values Fall?
Your credit limit is linked to the current market value of your pledged funds. If the NAV falls and the outstanding drawn amount exceeds the permitted Loan-to-Value (LTV) ratio, an LTV breach occurs.
- You will be notified by the lender.
- You have 7 days to either repay the excess amount or pledge additional mutual fund units to restore the LTV ratio.
- If the shortfall is not resolved within 7 days, the lender may sell a portion of your pledged units to recover the excess. This is treated as a redemption and may trigger capital gains tax.
- If the full outstanding amount is not repaid by the end of the 3-year tenure, pledged units may be liquidated at that point.
LTV ratios on smallcase: 45% of current market value for equity mutual funds; 75% of current market value for debt mutual funds (max LTV 85%). For example ₹1,00,000 in equity MFs → credit limit of ₹45,000. If the fund value drops to ₹90,000, the eligible limit reduces to ₹40,500. If you have ₹45,000 outstanding, you need to repay ₹4,500 to restore the ratio.
How to Close the Loan and Remove the Lien?
- Repay all outstanding principal and any accrued interest in full.
- Raise a loan closure request from the Loan Dashboard under the More tab, or contact the smallcase support team.
- Once the dues are confirmed as cleared, the lender submits a lien release request to the registrar or depository.
- The lien is removed, and your pledged units are fully accessible again. You can redeem, switch, or transfer them as normal.
LAMF vs Other Loan Types
The table below compares LAMF with other common borrowing options. This is for general reference; actual terms vary by lender and individual profile.
| Criteria | LAMF | Personal Loan | Home Loan | Car Loan |
|---|---|---|---|---|
| Collateral | Mutual fund units | None (unsecured) | Property | Vehicle |
| Loan purpose | Any | Any | Property purchase/construction | Vehicle purchase |
| Loan amount basis | 45% equity / 75% debt MF value (smallcase) | Income and credit score | Up to ~80-90% of the property value | Up to ~80-90% of vehicle value |
| Interest rate | From 9.99% p.a. (smallcase); typically 9-15% across lenders | Typically 11-24% p.a. | Typically 8.5-10% p.a. | Typically 7-12% p.a. |
| Interest charged on | Drawn amount only (OD structure) | Full disbursed amount | Outstanding principal | Outstanding principal (EMI) |
| Repayment | Flexible; no fixed EMI | Fixed EMI | Fixed EMI | Fixed EMI |
| Disbursal time | Within 2 working hours (smallcase) | 2-7 days typically | 1-3 weeks typically | 2-5 working days typically |
| Credit score check | No hard CIBIL check (smallcase) | Required | Required | Required |
| Impact on investments | Units lien-marked; cannot redeem until the loan is closed | None | None | None |
Note: Interest rates and timelines above are indicative ranges based on general market data as of early 2026. Actual terms depend on the lender and individual profile. This table is for comparison only.
To Wrap It Up…
Applying for a Loan Against Mutual Funds is a simple digital process. However, borrowers should carefully review the eligibility criteria, approved fund list, LTV limits, interest charges, repayment terms, and risks before applying. It is also important to understand how pledging affects redemption, what happens if fund values fall, and how repayments work. You can explore smallcase Loan Against Mutual Funds to check your eligible credit limit and understand the process before applying.ld in non-demat form or through a Zerodha demat account. Explore more about loans against mutual funds on smallcase here.
Looking for a Loan Against Mutual Funds (LAMF)? Explore LAMF on smallcase –
You can now apply for a loan against mutual funds (LAMF) on smallcase. Explore the quick and paperless process with the following articles about the eligibility criteria, documents required, features, benefits and more on LAMF at smallcase!
Frequently Asked Questions About How to Apply for LAMF
The default loan tenure for a 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 an instant loan against mutual funds through smallcase. However, before applying, it is important to review the eligibility criteria, approved fund list, LTV limits, interest charges, repayment terms, and associated risks.
Disclaimer: This information is for educational purposes only. Loan approval, eligibility, interest rates, and disbursement timelines depend on the lender’s policies and market conditions.
No, the pledged or lien-marked mutual fund units cannot be sold or redeemed without closing the loan. In case of a shortfall, principal repayment must be made in an amount at least equal to the shortfall. With that, the shortfall will be fulfilled, and the LTV ratio will be maintained. In case you fail to fulfil 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.
If the fund value falls and the drawn amount exceeds the permitted LTV ratio, the lender will notify you of a shortfall. You have 7 days to either repay the excess or pledge additional units. If unresolved, the lender may liquidate a portion of the pledged units. This is treated as a redemption and may trigger capital gains tax.
No, the mutual fund units in non-demat (folio/SOA) form registered with CAMS or KFintech are eligible. Demat units are also accepted, but only if held through a Zerodha demat account. Units in a Demat account with any other broker cannot be pledged through smallcase.
If the auto-debit for monthly interest fails, a bounce charge of ₹1,200 per instance applies. Overdue interest also attracts a late payment charge of 1.5% per month until it is paid. Ensure your linked bank account has sufficient funds on the interest due date each month.
Lien marking is a legal hold placed on your mutual fund units by the lender. It means those units cannot be sold, redeemed, or transferred while the loan is active. The lien is marked on the number of units pledged, not on a fixed rupee value. Once the loan is fully repaid, the lender submits a lien release request, and your units become freely accessible again.
Yes, LAMF on smallcase is an overdraft (OD) credit line. You can draw any amount within your available limit (minimum ₹1,000 per withdrawal), repay it, and draw again without reapplying. Interest is charged only on the amount drawn and for the days it is outstanding
