Loan Against Mutual Funds Approved List of Schemes
A loan against mutual funds can help investors access funds without selling their investments. However, not every mutual fund in a portfolio can be pledged for a loan. All the lenders maintain an approved list of schemes they accept as collateral, and if your fund is not on it, you will not be able to borrow against it, regardless of how much it is worth. Understanding what the approved list is, what determines a fund’s inclusion, and how to check your own holdings is an important step before applying for a Loan Against Mutual Funds.
What Is the Approved List for a Loan Against Mutual Funds?
The approved list is a lender-maintained register of mutual fund schemes eligible to be pledged as collateral for an LAMF. It is specific to each lender, and a scheme approved by one bank or NBFC may not be approved by another.
The list is dynamic, and lenders review and update it periodically in response to changes in fund risk profiles, AUM, regulatory status, and market conditions. Schemes can be added or removed over time.
When you apply for a loan against a mutual fund and import your holdings, the platform checks your funds against the lender’s approved list in real time. Only the schemes on the approved list are counted towards your eligible credit limit.
Loan Against Mutual Funds Approved List of Securities on smallcase
At smallcase, you can avail a loan of 45% of the Loan-to-Value (LTV) against your equity mutual funds and 75% LTV against your debt mutual funds. For example, if your equity mutual fund portfolio has a current value of ₹1L, you can secure a loan of ₹45,000. On smallcase, LAMF is available against 8,000+ approved mutual fund schemes across equity, debt, and hybrid categories. These span schemes from over 40 AMCs registered with CAMS and KFintech. You may access the approved list of securities for pledge here.
Why Do Lenders Maintain an Approved List?
The approved list is a risk management tool. Since the loan is secured against mutual fund units, the lender needs to be confident they can sell those units quickly and at a fair price in the event of a default or LTV breach.
Lenders therefore screen funds on factors like:
- Liquidity: Can the units be redeemed promptly at a fair NAV? Open-ended funds with active secondary markets are generally preferred.
- Volatility: How sharply does the fund’s NAV fluctuate? High-volatility funds carry a greater risk of the collateral value falling below the loan amount.
- AMC credibility: Is the fund house a SEBI-registered, established AMC with a track record?
- AUM size: Very small or illiquid schemes may not meet lenders’ thresholds for acceptable collateral quality.
- Regulatory compliance: The scheme must be in good standing with SEBI and not under any regulatory action.
Funds that meet these criteria are added to the approved list. Those who do not are excluded, regardless of their scheme category.
What Makes a Mutual Fund Scheme Eligible?
Most lenders accept the following categories as collateral, subject to their approved list:
| Fund Category | Generally Eligible? | Notes |
|---|---|---|
| Open-ended equity mutual funds | Yes | Subject to the lender’s approved list and LTV cap for equity |
| Open-ended debt mutual funds | Yes | Higher LTV than equity due to lower NAV volatility |
| Hybrid/balanced funds | Yes | LTV varies based on equity/debt composition |
| Liquid funds | Yes (at select lenders) | Very low volatility; sometimes eligible at higher LTV |
| ELSS during lock-in | No | Statutory lock-in prevents pledging; not eligible anywhere |
| ELSS after lock-in | Depends on the lender | May be eligible, subject to the lender’s approved list |
| Close-ended schemes | No | Cannot be redeemed before maturity; excluded by most lenders |
| Sectoral/thematic funds | Varies by lender | High concentration risk; some lenders exclude these |
| Fund of Funds (FoFs) | Varies by lender | Structural complexity means not all lenders accept these |
Which Funds Are Not Eligible for a Loan Against Mutual Funds?
The following are generally excluded from LAMF collateral across most lenders:
- ELSS units under the mandatory 3-year lock-in period cannot be pledged because redemption is restricted.
- Closed-end mutual fund schemes are usually not accepted because they cannot be redeemed before maturity.
- Schemes outside the lender’s approved list may not qualify, even if the fund category is generally eligible.
- Units already pledged with another lender cannot be pledged again.
- Physical mutual fund certificates that are not held in RTA or demat records are generally not accepted.
- Schemes under regulatory action, winding-up, or similar restrictions may not be accepted as collateral.
What Happens If a Fund Is Removed from the Approved List?
Lenders update their approved lists periodically. If a scheme you have pledged is removed from the approved list while your loan is active:
- The credit limit for that pledge may be reduced or removed entirely, depending on the lender’s policy.
- If your outstanding drawn amount exceeds the revised eligible limit, an LTV breach occurs, and the lender may issue a shortfall notice.
- You may be required to pledge additional approved units or repay the shortfall within the specified timeframe to avoid liquidation.
This is relatively uncommon for mainstream equity and debt funds from established AMCs, but borrowers with more niche or sectoral fund holdings should be aware of this risk.
How to Apply for a Loan Against Mutual Funds on smallcase?
Here is how you can get a loan against mutual funds using smallcase by following these steps:
- Log in to smallcase Credit: Visit smallcase Credit and click on Against Mutual Funds to check your credit limit.
- Check eligible funds: View 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.
To Wrap It Up…
The approved scheme list is the first eligibility check for a Loan Against Mutual Funds. Even if your mutual fund holdings have a high value, they may not qualify if the scheme is not approved by the lender. Checking this list before applying helps you understand eligibility, expected credit limit, and possible LTV upfront.
On smallcase, you can explore Loan Against Mutual Funds and Loan Against Stocks under loan against securities, with interest rates starting at 9.99% p.a. for mutual funds and 10.25% p.a. for stocks. Borrowers should review the approved scheme list, charges, risks, and repayment terms carefully, and consult a financial advisor before making any borrowing decision.
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!
FAQs on Loan Against Mutual Funds Approved List of Securities
Only mutual fund schemes that appear on the lender’s approved list are eligible. The approved list is specific to each lender and is updated periodically. Even if your fund is an eligible category (equity, debt, or hybrid), the specific scheme must be on the list. Always check before applying.
Your mutual fund investments are eligible for a loan only if they’re part of the lender’s approved list of mutual funds for pledging. At smallcase, you can get a loan against 7000+ approved schemes. Click here to get a list of the approved schemes.
You can’t pledge ELSS mutual funds for an LAMF during the mandatory 3-year lock-in period. ELSS units cannot be pledged, redeemed, or transferred while the lock-in is active. After the lock-in expires, eligibility depends on whether the specific scheme appears on the lender’s approved list.
The most common reasons may include: your funds are ELSS units still within the 3-year lock-in, your specific schemes are not on the lender’s approved list, your demat units are held with a broker other than Zerodha, or the email or phone number you entered does not match what is registered with your folio.
LTV ratios depend on the lender. Generally, equity mutual funds allow an LTV of up to 50% of the current NAV, while debt mutual funds allow up to 80-90%. On smallcase, equity MFs have a 45% LTV and debt MFs have a 75% LTV (max 85%). These figures are subject to change.
If a scheme is removed from the lender’s approved list while it is pledged, the eligible credit limit for that pledge may be reduced. If your drawn amount then exceeds the revised limit, a shortfall arises. The lender will notify you, and you may need to repay the excess or pledge additional approved units. This is more likely with niche or sectoral funds than with mainstream large-cap or debt schemes.
