Loan Against Securities vs Personal Loan: What to Know Before Choosing
When you need funds urgently, two options often come up: a Loan Against Securities (LAS) or a personal loan. Both put money in your account quickly, but the cost, structure, and long-term impact on your finances differ significantly. LAS lets you borrow against investments you already hold, such as mutual funds or stocks, without selling them. A personal loan requires no collateral but typically comes at a higher interest rate with fixed EMIs.
This article breaks down how the two compare in terms of cost, flexibility, and eligibility, so you can make an informed borrowing decision.
What Is a Loan Against Securities (LAS)?
A Loan Against Securities (LAS) is a secured loan where you pledge your existing financial investments, such as mutual funds, shares or bonds, as collateral with a lender. You do not sell your investments. The lender simply places a lien on them and disburses funds up to a percentage of their current market value. Your investments remain in your name and earn returns throughout the loan tenure.
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What Is a Personal Loan?
A personal loan is an unsecured loan disbursed by a bank or NBFC based on your creditworthiness, primarily your income, CIBIL score, employment history, and existing repayment obligations. No collateral is required. The full loan amount is released upfront and repaid in fixed monthly EMIs over a predefined tenure, typically ranging from 1 to 5 years. Because lenders take on higher risk with no underlying asset, personal loans generally carry higher interest rates than secured loans.
Loan Against Securities vs Personal Loan: Key Differences
| Parameter | Loan Against Securities (LAS) | Personal Loan |
| Collateral | Securities (mutual funds or stocks) pledged; investments stay in your name | None required (unsecured) |
| Loan Structure | Revolving credit line; withdraw, repay, reuse as needed | Fixed lump sum disbursed upfront with monthly EMI |
| Loan Amount | Determined by LTV applied to pledged securities value | Determined by income, credit score, and repayment capacity |
| Monthly Repayment | Interest only on the withdrawn amount; no fixed principal EMI | Fixed monthly EMI covering both principal and interest |
| Investment Portfolio | Stays invested and continues earning market returns | Not applicable |
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smallcase offers a Loan Against Mutual Funds in association with its RBI-regulated lending partners. The process is fully digital. You can check your eligible limit, select eligible mutual funds or stocks, complete KYC, set up an auto-debit mandate and sign the loan agreement before the funds are credited to your bank account. You then sign the loan agreement, after which the funds are credited to your bank account. Checking your credit limit does not affect your CIBIL score. When you apply and sign the loan agreement, a hard CIBIL check happens, which can impact your score.
Want to know more about Loan Against Stocks (LAS) and Loan Against Mutual Funds (LAMF) on smallcase? Click here.
How Does a Loan Against Securities Work?
A Loan Against Securities (LAS) lets you unlock liquidity from your existing investment portfolio without selling it. Here’s how the process works:
- Pledge your securities: You offer eligible mutual funds or stocks as collateral. The securities are lien-marked in favour of the lender but remain in your folio or demat account
- Get a credit line: Based on the Loan-to-Value (LTV) ratio applied to your pledged securities’ current market value, a credit limit is sanctioned
- Withdraw as needed: Draw funds from your credit line as and when required. You are not obligated to use the full limit
- Pay interest only on what you use: Interest is charged only on the amount withdrawn, not on the full sanctioned limit
- Repay flexibly: Repay the principal in full or in parts, at your convenience. Many lenders do not charge for foreclosure, but check your lender’s terms
- Reuse your limit: Depending on the lender, as you repay, the repaid amount may be available to withdraw again without reapplying
- Portfolio stays invested: Your pledged securities continue earning returns throughout the loan tenure You can unpledge units to the extent you have repaid the loan.
How Is Your Credit Limit Calculated?
Your eligible credit limit depends on the type of securities you pledge and the applicable Loan-to-Value (LTV) ratio.
| Fund Type | Credit Limit (LTV) | Max Loan-to-Value (LTV) |
| Equity Mutual Funds | Varies by lender | Up to 75% (RBI cap for bank loans) |
| Debt Mutual Funds | Up to 85% of the current market value | 85% |
For example: If you hold ₹2,00,000 in equity mutual funds, at an illustrative 45% LTV your eligible credit limit would be ₹90,000. For ₹2,00,000 in debt mutual funds at an LTV of up to 85%, the credit limit could be up to ₹1,70,000.
If your credit limit shows ₹0, possible reasons include: your funds are ELSS units still within the 3-year lock-in period; your units are already pledged with another lender; or the specific schemes are not on the lender’s approved list of eligible securities.
Need urgent cash? Apply for a loan against mutual funds
Key Factors to Consider When Choosing Between LAS and a Personal Loan
Choosing between a Loan Against Securities and a personal loan depends on your financial situation, investment portfolio, and borrowing needs.
- Eligibility of Your Securities: LAS is available only if you hold mutual funds or stocks that qualify for pledging. If your portfolio includes only ELSS funds under lock-in, fixed deposits, or other ineligible instruments, a personal loan may be the available option.
- Loan Amount Required: LAS limits depend on the value of your pledged securities and the applicable LTV ratio. If your required amount exceeds what your portfolio can support, you may need a personal loan or a mix of both.
- Duration of Borrowing Need: LAS usually works for short to medium-term needs with a clear repayment plan. For longer tenures with fixed monthly cash outflows, a personal loan’s EMI structure may suit better.
- Market-Linked Risk: LAS carries market-linked risk. If the value of your pledged securities falls sharply, the lender may issue a margin call. You may need to repay part of the loan or pledge more eligible securities. Personal loans do not carry this market-linked obligation.
- Repayment Structure: LAS offers repayment flexibility but requires discipline. It does not have fixed EMIs to enforce repayment. A personal loan follows a fixed EMI schedule, which can help borrowers repay the loan in a structured way.
- Credit Score and Income Documentation: LAS approval mainly depends on the value of your securities. Checking your eligible limit usually does not involve a hard credit check, but lenders may run a hard CIBIL check when you apply. Personal loan eligibility depends heavily on credit score and income. If your credit score is low or your income documentation is limited, LAS may be more accessible.
When Is a Loan Against Securities a Better Choice Than a Personal Loan?
Eligible Securities
LAS can work when you hold mutual funds or stocks that qualify for pledging. It lets you access liquidity without selling your portfolio or triggering capital gains tax.
Short to Medium-Term Borrowing Need
LAS works as a revolving credit line. This structure can suit time-bound needs such as a medical emergency, a bridge payment, or a short cash-flow gap, where repayment may occur once income normalises.
Flexible Repayment
LAS does not follow fixed EMIs. It allows part repayments, and many lenders do not charge for foreclosure. This makes the repayment structure more flexible than a personal loan’s fixed schedule.
Low or Limited Credit History
LAS approval mainly depends on the value of your pledged securities. Limited credit history or irregular income may create fewer barriers compared to personal loan eligibility rules.
Investment Portfolio Continuity
Pledging keeps your securities invested and compounding. If staying invested through a market cycle matters to your long-term plan, LAS avoids the permanent exit that can result from redemption or liquidation.
To Wrap Up…
A Loan Against Securities and a personal loan serve different borrowing needs. LAS includes loans against mutual funds, stocks, bonds, and other eligible securities. It can offer a lower-cost, flexible, and investment-preserving way to access liquidity if you hold eligible assets.
A personal loan may suit borrowers who do not have collateral, need a higher amount than LTV-based limits allow, or prefer fixed EMI repayments.
Disclaimer: This article is for educational and informational purposes only and should not be considered financial, investment or lending advice. Loan eligibility, approval, interest rates, credit limits, charges and other terms are subject to the lender’s policies, applicable regulations and the value of the securities pledged. Please review the applicable loan agreement, terms and conditions, and associated risks carefully before borrowing. If you are considering a Loan Against Securities, you can learn more about our LAS and LAMF offerings in detail at the help centre.
Frequently Asked Questions About LAS vs Personal Loans
A Loan Against Securities is a secured credit facility where you pledge your existing financial assets, such as mutual funds or listed equity shares, as collateral with a lender. The lender disburses funds up to a specified percentage (the Loan-to-Value ratio) of the current market value of these assets. You retain ownership of the pledged assets, which continue to earn returns during the loan period. The facility is structured as a revolving credit line rather than a fixed-term loan with monthly EMIs.
It depends on your financial situation. LAS generally offers lower interest rates than unsecured loans and a credit line you draw from as needed, which can suit investors with adequate eligible holdings. However, it requires pledging your investments and carries LTV risk if market values fall significantly. A personal loan does not require collateral but typically comes with higher interest rates and a fixed EMI obligation. Evaluate both based on your borrowing need, available portfolio, repayment capacity, and risk tolerance.
Disclaimer: Please consult a certified financial advisor before making any borrowing decision. Individual circumstances vary.
LAS may suit you when you have sufficient eligible securities, need funds quickly, want to avoid disrupting your long-term investment portfolio, do not prefer a fixed monthly EMI, and want to benefit from a lower starting interest rate. LAS is particularly well-suited to short- to medium-term liquidity needs where you have a clear repayment plan.
It can. Checking your eligible credit limit usually does not involve a hard inquiry, so it does not affect your CIBIL score. When you apply and sign the loan agreement, lenders typically run a hard CIBIL check, which can affect your score. Missed interest payments or defaults can also be reported to credit bureaus. Because LAS is secured by your pledged holdings, approval relies more on the collateral than on credit history, which can help borrowers with a limited credit history.
Several categories are typically ineligible for pledging. These include ELSS funds within the mandatory 3-year lock-in period, units already pledged or under a lien with another lender, and schemes not on the lender’s approved list. Units in joint folios may be accepted, but lenders usually need all holders to sign. Check the lender’s current approved list before applying, as it is subject to revision.
Disclaimer: The list of eligible fund schemes is subject to change at the lender’s discretion without prior notice.
Foreclosure and prepayment charges depend on the lender. Many lenders let you repay the outstanding principal, in full or in part, at any time without extra charges, but some may levy a fee. Check the loan agreement before you borrow. Once you repay the loan in full, the lien on your pledged securities is removed. You can also unpledge part of your holdings to the extent you have repaid the loan. Personal loans may also carry prepayment or foreclosure charges, depending on the lender and loan type, so compare these terms before choosing between the two.
If the market value of your pledged securities declines and the outstanding loan exceeds the permissible LTV ratio, you will be notified to restore the LTV within a specified timeframe. You can do this by repaying part of the outstanding principal or pledging additional eligible securities. If the LTV is not restored within this window, the lender may liquidate a sufficient portion of your pledged holdings to bring the outstanding loan back within permitted limits. This risk is more pronounced for equity holdings due to higher price volatility.
Disclaimer: Mutual fund NAVs and stock prices fluctuate with market conditions. LTV breaches can lead to forced liquidation of pledged securities. Please factor this risk into your decision before pledging equity-heavy portfolios. This is not investment advice.
Pledging your securities does not constitute a redemption or transfer and therefore does not trigger capital gains tax at the time of pledging. Your holdings remain invested in your name, with a lien recorded against them. Capital gains tax implications arise only if you redeem the securities voluntarily after the lien is removed, or if the lender liquidates them to recover outstanding dues due to an LTV breach or loan default. In the event of lender-forced liquidation, the holding period for computing capital gains is typically reckoned from the original date of acquisition.
Disclaimer: Tax treatment varies based on individual circumstances and is subject to prevailing income tax provisions, which may change. Please consult a qualified chartered accountant or tax advisor before making decisions with tax implications.
Yes. Pledging existing mutual fund units does not affect your ability to continue active SIP investments, whether in the same fund or in different schemes. The lien applies only to the specific units pledged at the time of application. New units acquired through subsequent SIP instalments are not automatically encumbered and remain freely redeemable. You can unpledge part of your pledged units, but only to the extent you have repaid your loan. The remaining units stay pledged until the outstanding amount is cleared.
No. LAS does not work like a traditional EMI-based loan. You pay only monthly interest on the amount you have withdrawn; the principal can be repaid at any time, in full or in parts, and many lenders do not charge for foreclosure. Interest is calculated only on your outstanding principal, not the full sanctioned credit limit.
Disclaimer: Loan terms are subject to lender policies at the time of application. Please read the loan agreement carefully before applying.
