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, bonds, or insurance policies, 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.
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) |
| Interest Rate | Generally lower, LAMF starting @9.99% p.a.; Loan Against Stocks starting @10.25% p.a. | Typically 11–24% p.a., depending on lender and credit profile |
| 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 |
| Tenure | Up to 36 months at smallcase | 1 to 5 years (varies by lender) |
| Monthly Repayment | Interest only on the withdrawn amount; no fixed principal EMI | Fixed monthly EMI covering both principal and interest |
| Foreclosure Charges | Nil at smallcase | Typically 2–5% on outstanding principal (varies by lender) |
| Credit Score Impact | No hard CIBIL inquiry; does not affect credit score | Hard CIBIL inquiry at application; score directly affects eligibility |
| Disbursement Time | Within 2 working hours of completing the application | Typically 1–7 business days |
| Investment Portfolio | Stays invested and continues earning market returns | Not applicable |
| Tax Trigger | Pledging alone does not trigger capital gains tax | Not applicable |
How to Apply for a Loan Against Securities via smallcase?
- Log in to smallcase Credit: Visit smallcase Credit and click on ‘Loan Against Mutual Funds’ or ‘Loan Against Stocks’ to check your credit limit.
- Check eligible stocks: View your Zerodha demat holdings and see which stocks and ETFs are available for pledging.
- Select stocks to pledge: Choose the securities you want to use as collateral and confirm your credit limit.
- Link your bank account: Add your bank details for disbursement and set up an e-mandate for monthly interest auto-debit.
- Pledge your stocks: Selected shares are lien-marked through the depository while remaining in your Zerodha demat account.
- Sign the loan agreement: Review the terms, verify with OTP, and sign the agreement online.
- Receive the loan amount: The amount is credited directly to your linked bank account after signing.
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, with zero foreclosure charges
- Reuse your limit: As you repay, your credit line is restored and available to withdraw again without reapplying
- Portfolio stays invested: Your pledged securities continue earning returns throughout the loan tenure and are released only upon full repayment
At smallcase, LAS is available in two forms:
- Loan Against Mutual Funds (LAMF): Pledge eligible mutual fund units across equity, debt, and hybrid categories
- Loan Against Stocks: Pledge eligible listed stocks from your demat account
Both are fully digital, paperless, and disburse funds within 2 working hours of application completion.
How Is Your Credit Limit Calculated?
Your eligible credit limit depends on the type of mutual funds you pledge and the applicable Loan-to-Value (LTV) ratio.
| Fund Type | Credit Limit (LTV) | Max Loan-to-Value (LTV) |
| Equity Mutual Funds | 45% of the current market value | 45% |
| Debt Mutual Funds | 75% of the current market value | 85% |
For example: If you hold ₹2,00,000 in equity mutual funds, your eligible credit limit is ₹90,000 (45% of ₹2,00,000). For ₹2,00,000 in debt mutual funds, the credit limit would be ₹1,50,000 (75%).
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. Over 8,000 approved fund schemes are eligible at smallcase.
Fees and Charges for LAMF at smallcase
| Fee Type | Amount |
| Interest Rate | Starting at 9.99% p.a. (charged on outstanding principal only) |
| Processing Fee | ₹999 or 1% of loan amount (maximum ₹4,999) + applicable GST |
| Late Payment Interest | 1.5% per month on any overdue interest |
| Bounce Charges | ₹1,200 per failed auto-debit instance |
| Demat Pledge Charges | Charged per security by the lender and the depository participant, respectively + applicable GST |
| Part-Prepayment / Foreclosure | NIL |
| Lien Removal after Loan Closure | NIL |
Disclaimer: Fee structures are subject to revision at the lender’s discretion. Please verify the latest applicable charges on the smallcase app before applying.
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.
- Total Cost of Borrowing: LAS interest rates start at 9.99% p.a. The lender charges interest only on the drawn amount. Personal loan rates usually range from 11% to 24% p.a. on the full disbursed amount. For the same borrowing need, LAS often has a lower borrowing cost.
- 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 and does not involve a hard CIBIL inquiry. 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.
Lower Borrowing Cost
LAMF starts at 9.99% p.a., and Loan Against Stocks starts at 10.25% p.a. The lender charges interest only on the withdrawn amount. This can make LAS cheaper than most personal loans, especially for smaller withdrawals over shorter periods.
Flexible Repayment
LAS does not follow fixed EMIs. It also has no foreclosure charges and allows part repayments. 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.
At smallcase, you can access two LAS products. These include Loan Against Mutual Funds and Loan Against Stocks. Both offer disbursement within 2 working hours, zero foreclosure charges, and no impact on your CIBIL score.
All About Loan Against Securities & Loan Against Mutual Funds on smallcase –
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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, faster disbursement, and no hard CIBIL check, advantages that make it attractive for 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 is generally preferable when you have sufficient eligible securities, need funds quickly, want disbursement on smallcase within 2 working hours, 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.
No. Checking your credit limit for LAS at smallcase does not trigger a hard inquiry on your CIBIL report and has no impact on your credit score. Since LAS is fully secured by your pledged holdings, the lender can recover dues from the collateral in the event of default and does not depend primarily on your creditworthiness. This makes LAS accessible to borrowers with a low or limited credit history who may not qualify for competitive personal loan rates.
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, unlisted or unapproved schemes not on the lender’s approved list, and units held in joint account folios. It is advisable to review the current list of eligible schemes on the smallcase app before applying, as the approved list is maintained by the lender and subject to revision.
Disclaimer: The list of eligible fund schemes is subject to change at the lender’s discretion without prior notice.
No. There are no foreclosure charges and no prepayment penalties on Loans Against Mutual Funds and Loans Against Stocks at smallcase. You may repay the outstanding principal, in full or in part, at any time during the loan tenure without incurring any additional cost. Upon complete repayment, the lien on your pledged securities is removed, and your holdings are restored to full ownership. This is a meaningful advantage over many personal loans, which often carry prepayment penalties of 2–5%.
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 7 days. 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. However, partial unpledging of individual units is not permitted during the loan tenure; all pledged units are released together only when the loan is fully repaid, and the account is formally closed.
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, with zero foreclosure charges. Interest is calculated only on your outstanding principal, not the full sanctioned credit limit. So if you have drawn ₹1 lakh from a ₹4 lakh limit, you pay interest on ₹1 lakh only, approximately ₹833/month at 9.99% p.a.
Disclaimer: Loan terms are subject to lender policies at the time of application. Please read the loan agreement carefully before applying.
