India’s Loan Against Mutual Funds Market: Size, Growth & 2028 Outlook
India’s Loan Against Mutual Funds (LAMF) market is at an inflection point. As mutual fund ownership deepens and investors grow more financially literate, the collateral pool available for secured borrowing has expanded rapidly, and lenders, NBFCs, and fintech platforms are racing to serve it. This article examines the market’s current size, the structural forces driving its growth, and what the 2025–2028 period looks like for LAMF in India.
The Foundation: A Mutual Fund Industry That Has Grown Six-Fold
LAMF growth does not happen in isolation; it tracks directly with the growth of the mutual fund industry that underpins it. As of April 30, 2026, India’s mutual fund AUM stands at ₹81,92,388 cr. (₹81.92 lakh cr.), having grown approximately sixfold from ₹14.22 lakh cr. in April 2016, and nearly threefold from ₹32.38 lakh cr. in April 2021. The AAUM for April 2026 stood at ₹81,94,396 cr. (₹81.94 lakh cr.), and total investor folios reached 27.53 cr., of which 21 cr. were in equity, hybrid, and solution-oriented schemes that form the primary LAMF collateral pool.
This expanding base is the single most important driver of the LAMF market size. Every rupee added to investor portfolios is a potential unit of pledgeable collateral. The MF industry added nearly ₹14 lakh cr. in AUM in 2025 alone, driven by sustained SIP inflows and retail participation from smaller cities and first-time investors.
Current Market Size: Where LAMF Stands Today
The LAMF market in India, as of 2025, was estimated at ₹50,000–55,000 cr. in outstanding loans, having grown from near-negligible levels a decade ago, when digital infrastructure for pledging and lien-marking was not yet in place. While this remains a fraction of the broader ₹144 lakh cr. retail credit market, the trajectory is steep, and the structural conditions for acceleration are now in place.
Several factors explain why the number is still relatively modest despite the large MF AUM base. Awareness of LAMF as a product remains low compared to personal loans or gold loans. Until recently, the process of pledging mutual fund units required physical documentation and branch visits, limiting adoption to urban HNI borrowers. Digital-first platforms have changed this; lien marking is now electronic, disbursements occur within hours, and the entire journey can be completed paperlessly via a mobile app.
How to Apply for LAMF on smallcase?
- Log in to smallcase Credit: Visit smallcase Credit and click on Against Mutual Funds to check your credit limit.
- Check eligible funds: View SBI mutual funds and other eligible holdings available for pledging.
- Select funds to pledge: Choose funds 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 within 2 working hours after signing.
Growth Drivers: What Is Expanding the Market
1. The SIP Boom Is Building a Pledgeable Middle Class
India’s SIP ecosystem has transformed the retail investor base. Monthly SIP contributions crossed ₹31,000 cr. for the first time in December 2025, with the number of contributing SIP accounts reaching 9.79 cr. SIP AUM crossed ₹16.63 lakh cr. by the end of 2025, up from roughly ₹13 lakh cr. at the start of the year. This means a growing segment of middle-income investors now holds meaningful MF portfolios, the same portfolios that can serve as LAMF collateral.
Historically, LAMF was primarily used by HNIs and business owners with large investment corpora. The SIP-driven democratisation of mutual fund investing is creating an entirely new borrower segment: the retail investor with a ₹5–50 lakh portfolio who needs short-term liquidity but does not want to redeem, forgo returns, or trigger capital gains tax.
2. The FY26 Folio Explosion Is Widening the Eligible Pool
In FY26, the mutual fund industry added 46.8 mn new folios, bringing the total to 27.39 cr. This is not just a numbers story; it reflects deeper geographic and demographic penetration. AMFI data shows contributions from beyond the top 30 cities (B30) have been steadily increasing, aided by digital KYC and mobile-first onboarding. As MF ownership expands beyond metros, the addressable market for LAMF scales proportionally.
3. Fintech Platforms Are Removing the Friction
The infrastructure for LAMF has matured considerably. CAMS and KFintech, the two major registrar and transfer agents, provide digital APIs that allow platforms to fetch investor holdings instantly using PAN or registered contact details. Lien-marking is now digital and takes minutes. This has allowed fintech-lender partnerships to offer LAMF with disbursement timelines of two hours or less, and entirely paperless application flows.
Major investment platforms have entered the LAMF space in 2025 and 2026, recognising it as a natural adjacency to their wealth products. ET Money, a 360 ONE company, launched LAMF in July 2025 to complement its long-term investment offerings. This pattern, wealth platforms adding credit products built on their users’ existing MF portfolios, represents a structural distribution shift likely to continue through 2028.
4. Investors Are Holding, Not Redeeming: Which Increases Borrowing Intent
Perhaps the most important behavioural shift underpinning LAMF growth is that Indian MF investors are staying invested through market cycles rather than redeeming. Retail investors continued their SIPs through the equity market corrections of 2024–2025, showing disciplined, long-horizon investing behaviour. An investor who does not redeem during a dip is also more likely, when facing a liquidity need, to consider pledging units rather than selling them. This preference for “borrow against the portfolio” over “sell the portfolio” is the core driver of demand for LAMF.
5. The Regulatory Environment Is Formalising Digital Lending
The RBI’s Digital Lending Directions, 2025, effective from May 2025, brought greater transparency and borrower protection to the digital lending ecosystem. Key provisions include mandatory Key Fact Statements, direct disbursal to borrower accounts, and a public registry of digital lending apps. For LAMF specifically, this formalisation works in the product’s favour: it makes compliant platforms more trustworthy, pushes out unregulated operators, and creates a cleaner environment for lender-fintech co-lending partnerships to scale.
2025–2028 Outlook: What Growth Looks Like?
The Collateral Pool will Double; the Addressable Market will Follow
The Indian mutual fund market is projected to grow from approximately USD 0.91 tn in 2026 to USD 1.27 tn by 2031, at a CAGR of around 6.86%. Even at this more moderate pace relative to the outsized gains of recent years, the absolute size of the pledgeable asset base will continue to expand. With equity-oriented schemes, which carry a 45% LTV for LAMF purposes and form the dominant share of retail holdings, the theoretical credit available to investors grows in direct proportion to AUM growth.
In India’s LAMF market, industry estimates indicate a significant runway. The current ₹50,000–55,000 cr. outstanding is against an AUM base that supports far more. If LAMF penetration inches up from its current low levels toward even 1% of total equity + hybrid AUM, the market size would exceed ₹2–3 lakh cr. That is not a near-term projection, but it illustrates the scale of underutilisation that platforms and lenders are now trying to address.
Three Forces will Shape 2025–2028, specifically:
- Deeper B30 penetration driven by digital onboarding: As mobile-first LAMF journeys become standard, the product will reach tier 2 and tier 3 investors who currently lack access to collateral-backed credit. UPI-linked financial infrastructure, digital KYC, and regional language interfaces are all accelerating this.
- Integration with wealth and investment platforms: The trend of investment platforms adding LAMF as a product will enable embedded, frictionless lending at the point where investors already manage their portfolios. This dramatically lowers discovery costs and increases conversion rates.
- Normalisation of pledging as a financial behaviour: As more investors go through the LAMF experience, retaining their MF returns while accessing liquidity at sub-12% interest rates versus the 15–24% range for personal loans, the behaviour will normalise. Word-of-mouth, product familiarity, and repeat usage will compound market growth beyond what new user acquisition alone can achieve.
Risks and Constraints Worth Watching
LAMF growth is not without headwinds. Three specific risk categories merit attention for anyone assessing this market.
Market Volatility
LAMF is intrinsically tied to MF valuations. When equity markets correct sharply, the NAV of pledged units falls, which compresses available credit limits; at the same time, borrowing demand tends to rise. Investors facing a liquidity crunch may find their credit line shrinking precisely when they need it most. Platforms and lenders managing large LAMF books need real-time collateral-monitoring infrastructure to detect and communicate these movements before they escalate into forced liquidations.
LTV Breaches
When a borrower’s outstanding loan exceeds the allowed Loan-to-Value threshold, 45% for equity MFs, 85% for debt MFs, as set by SEBI, the lender issues a shortfall notice, typically requiring repayment within 7 days. If the borrower fails to act in time, the lender is entitled to liquidate the pledged units to recover the outstanding amount. This mechanism protects lenders but creates real execution risk for borrowers in fast-moving markets. The narrower the buffer between the borrower’s withdrawal and their sanctioned credit limit, the higher the probability of a breach during a correction. For the market overall, a sharp equity drawdown that triggers widespread LTV breaches could create a feedback loop, forcing MF liquidations and putting further pressure on NAVs.
Regulatory Changes
LAMF sits under a dual regulatory structure: SEBI governs the mutual fund collateral side, and RBI governs the lending side. Any revision to LTV ratios, lien-marking norms, or overdraft product guidelines can materially alter the product’s economics overnight. The RBI’s Digital Lending Directions, 2025, have already added compliance requirements around borrower disclosures, Key Fact Statements, and direct disbursal norms. Future amendments, particularly around co-lending arrangements between fintechs and NBFCs, could affect how LAMF is distributed at scale. Platforms building LAMF businesses need to design for regulatory agility, not just growth.
Frequently Asked Questions About India LAMF Market Size & Growth
The LAMF market in India is estimated at ₹50,000–55,000 cr. in outstanding loans as of early 2025, based on industry estimates. This remains a small fraction of the broader retail credit market but is growing as MF AUM expands and digital platforms make the product more accessible.
Disclaimer: Market size figures are based on industry estimates and may vary across sources. This is for informational purposes only and does not constitute financial advice.
The primary growth drivers are the rapid expansion of India’s mutual fund industry (AUM at ₹73.73 lakh cr. as of March 2026), the SIP boom creating a new class of retail investors with pledgeable portfolios, fintech platforms that have digitised the pledging process, and a regulatory environment that is formalising digital lending. Behavioural shifts, investors holding portfolios through market cycles rather than redeeming, are also increasing the natural demand for borrowing against MFs.
There is no publicly available standalone forecast for the LAMF market through 2028. However, the pledgeable base, India’s equity and hybrid MF AUM, is projected to continue growing at a healthy rate through 2031. If platform adoption and investor awareness accelerate LAMF penetration, the market has significant headroom from its current ₹50,000–55,000 cr. base. The actual trajectory will depend on equity market performance, regulatory developments, and the pace at which digital-first LAMF platforms penetrate B30 markets.
Disclaimer: Forward-looking market projections involve uncertainty. Past growth in MF AUM does not guarantee proportional growth in LAMF lending. Borrowers and investors should consult a financial adviser before making borrowing decisions.
LAMF has historically been used by HNIs and business owners needing short-term liquidity without liquidating large portfolios. The profile is broadening: SIP investors with portfolios in the ₹5–50 lakh range are increasingly using LAMF for needs such as medical emergencies, business cash-flow gaps, or short-term personal expenses, particularly as digital platforms have made the process more accessible to retail investors.
LAMF typically offers lower interest rates than personal loans, generally in the 9–13% p.a. range versus 12–24% for unsecured personal loans, because it is backed by collateral. The investor also continues to earn returns on pledged funds throughout the loan tenure, which is not possible with a redeemed portfolio. The key trade-off is that pledged units cannot be sold or redeemed until the loan is repaid, and if the portfolio value falls significantly (LTV breach), the borrower may be required to repay part of the outstanding or risk liquidation of pledged units.
Disclaimer: Interest rates are indicative and vary by lender. LAMF involves risks, including potential liquidation of pledged mutual funds in the event of LTV breach or default. Mutual fund investments are subject to market risk.
Yes. LAMF is subject to a dual regulatory structure: the lending component is regulated by the Reserve Bank of India (RBI), including under the Digital Lending Directions, 2025, while the mutual fund collateral side is governed by SEBI. SEBI sets the LTV limits, currently 45% for equity MFs and 75% for debt MFs, and RBI regulates the lender conduct, disbursement practices, and borrower disclosures.
In most cases, LAMF is offered as an overdraft or credit line facility without a hard inquiry on the borrower’s credit bureau record, so it typically does not impact the CIBIL score at the time of application. However, missed interest payments or default on the loan can be reported to credit bureaus. Borrowers should confirm the specific terms with their lender.
Disclaimer: Credit reporting practices vary by lender. Consult your lender for precise details on how LAMF impacts your credit profile.
If the market value of your pledged MFs falls such that the outstanding loan exceeds the allowed LTV ratio, you will receive a notification to repay the excess amount, typically within 7 days. If the shortfall is not addressed within the stipulated period, the lender has the right to liquidate the pledged units to recover the outstanding amount. Investors should maintain a buffer between their credit limit and actual withdrawal to reduce the risk of LTV breach in volatile markets.
Disclaimer: Mutual fund values are subject to market risk. LTV breach policies and timelines vary by lender. This is not financial advice.
