What is LAMF (Loan Against Mutual Funds)? The Complete 2026 Guide
Investing in mutual funds offers several benefits, including convenience, diversification, and potential long-term gains. Mutual funds can also give you financial flexibility when you need funds. A Loan Against Mutual Funds, or LAMF, helps you use your existing mutual fund investments to access funds without selling them.
In this blog, we will explain what LAMF means, how the application process works, who can apply, what documents you need, the key benefits of a loan against mutual funds, and more.
What is a Loan Against Mutual Funds?
A Loan Against Mutual Funds, or LAMF, is a type of Loan Against Security, or LAS. It allows individuals to use their mutual fund investments as collateral to get a loan from a bank, NBFC, or other lender. This loan works like an overdraft facility. The bank or NBFC sets a borrowing limit based on the value of the mutual fund units.
You can also opt for a digital loan against mutual funds via smallcase at an interest rate starting at 9.99% p.a., which is lower than many traditional loans. The 100% digital process removes lengthy paperwork and allows a quick application that can be completed in just 5 minutes on the smallcase app. With smallcase, you can access over 6,000 mutual fund schemes registered with CAMS, or Computer Age Management Services. When you opt for LAMF, you do not need to sell or redeem your mutual fund investments and can continue earning returns on the pledged units.
Are You Thinking of Applying for Loan Against Mutual Fund? Consider smallcase
At smallcase, you can easily avail of a loan against mutual funds within just a few minutes. Here are the steps for applying for loan against mutual funds:
- Download the smallcase app.
- Click on the ‘More’ tab and select ‘Loan Against Mutual Funds’.
- Next, you can import & select the mutual funds you want to use as collateral. Make sure these selected funds are present in the mutual fund list of eligible funds.
- Link your bank account to receive funds and set up a mandate for monthly interest auto-debit.
- Pledge your holdings with the lender. Please note that once your mutual funds units are pledged, they cannot be sold/redeemed before the loan closes.
- At last, sign the digital agreement to complete the LAMF process. Once the verification is completed, money will be credited to your source bank account.
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How Does a Loan Against Mutual Funds Work?
A loan against mutual funds is a secured financial facility that allows investors to access funds quickly by leveraging their existing mutual fund investments. The process begins by pledging the mutual fund units as collateral with a lender. The lender asks the mutual fund registrar, such as CAMS, to mark a lien on a specific quantity of units. The registrar then stamps the lien and sends a confirmation letter to the lender, along with a copy forwarded to the borrower.
However, it is important to note that the lien applies specifically to the number of units held within the scheme. Since these loans are secured against your mutual fund units, the lender has a right or lien on them. After that, when you pledge your mutual fund units to avail of a loan against them, your funds will still earn interest, but you won’t be able to sell/redeem them before the loan is closed.
It is important to note that a mutual fund withdrawal can occur only after the loan is repaid. Once the loan is closed, the lender may request the mutual fund houses to release the lien. If the lender receives half the payment, you can also partially release the lien, allowing some units to be free while the rest remain as collateral.
Types of Mutual Funds Eligible for LAMF on smallcase
LAMF on smallcase supports 8,000+ approved mutual fund schemes across equity, debt, and hybrid categories. Eligibility depends on Bajaj Finance’s approved list, fund type, lock-in status, and pledge status.
- Equity Mutual Funds: Equity mutual funds are eligible on smallcase if they are part of the approved list. Since equity funds are more volatile, the credit limit is usually capped at 45% of the market value.
- Debt Mutual Funds: Debt mutual funds may also be eligible if Bajaj Finance approves the scheme. These funds usually have a higher credit limit, typically around 75% of the market value.
- Hybrid Mutual Funds: Hybrid mutual funds can qualify if they appear on the approved list. Their eligibility and credit limit depend on the fund’s equity and debt allocation.
- Funds That Are Not Eligible: Some mutual funds may not qualify for LAMF on smallcase. These include ELSS funds with a 3-year lock-in period, funds not on Bajaj Finance’s approved list, and units already pledged to another lender.
What is Lien Marking on Mutual Funds?
Lien marking on mutual funds gives the lender a claim on your pledged mutual fund units when you take a loan against them. A lien authorises the lender to hold a claim on the units and recover dues if the borrower does not repay the loan as agreed.
To create a lien, you can request the fund house to mark the lender’s name against your mutual fund units. All unit holders need to sign this request.
Once you repay the loan, the lender can ask the fund house to release the lien. Some lenders may also allow partial lien removal after partial repayment. In this case, some units become free, while the remaining units stay under lien. If the borrower fails to repay the loan, the lender can enforce the lien as per the loan terms.
What are the Charges and Interest Rates of Loan Against Mutual Funds (LAMF)?
The charges and interest rates of LAMF vary from lender to lender. However, some typical charges and interest rates include:
- Processing Fee: This is a one-time fee charged when you take out the loan. Therefore, at smallcase, the processing fee is ₹999 or 1% of the loan amount, whichever is higher, with a maximum cap of ₹4,999 (GST will be applied). For example, ₹999 + GST (loan less than 1 lakh), 1% of the sanctioned amount + GST (loan between 1 to 5 lakh), and ₹4,999 + GST (loan greater than 5 lakh.
- Interest Rate: The interest rate on an LAMF is typically lower than that on other types of loans, such as personal loans or credit cards. The interest rate can range from 8% to 18% per annum. However, the interest rate on the smallcase loan against mutual funds starts from at 9.99% p.a.
- Early Repayment Fee: Some LAMFs charge an early repayment fee. These fees can be significant, so it is important to read the terms and conditions carefully before you take out a loan against all mutual fund schemes. However, if you wish to close your loan early at smallcase, then no foreclosure charges will be applied.
Here is a complete breakdown of all the fees and charges that apply to a loan against mutual funds via smallcase.
| Charge | Amount | Details |
| Processing fee | ₹999 or 1% of loan amount, maximum ₹4,999, plus GST | ₹999 plus GST for loans below ₹1 lakh. 1% plus GST for loans between ₹1 lakh and ₹5 lakh. ₹4,999 plus GST for loans above ₹5 lakh. |
| Interest rate | Starting at 9.99% p.a. | Charged only on the outstanding principal, not the full credit limit. |
| Late payment interest | 1.5% per month | Applies on overdue interest if the monthly payment is missed. |
| Bounce charges | ₹1,200 per bounce | Charged if auto-debit fails due to insufficient funds. |
| Demat pledge charges | ₹50 plus GST by Bajaj Finance and ₹32 plus GST by Zerodha | Charged per security at the time of pledging. |
| Part-prepayment and foreclosure | Nil | Borrowers can repay any amount or close the loan at any time with no extra charges. |
| Lien removal after loan closure | Nil | No charge once the loan is fully repaid and closed. |
| Lien removal before disbursement | Actual processing fee applicable | Applies if the borrower cancels after lien marking but before signing the agreement. |
Who Can Apply for a Loan on Mutual Funds?
To avail of an instant digital loan against mutual fund units, the primary expectation is to have mutual fund holdings. Apart from that, it is important to know the eligibility criteria and the loan against mutual funds documents required to ensure a smooth and quick application process. Therefore, we have listed the following eligibility criteria and required documents that you need to review before applying for LAMF via smallcase.
The applicant must be between 18 and 70 years of age at the time of application. Applications from joint account holders are not eligible; only the primary account holder can apply for LAMF via smallcase.
Loan Against Mutual Funds Eligibility
LAMF is a flexible financing option built for a wide range of individuals. Whether you’re salaried or self-employed, you can apply. To be eligible, you need to be between 18 and 70 years old and have an active PAN card linked to your bank account. You can borrow anywhere from ₹25,000 up to ₹5 cr. against approved mutual funds held with CAMS & KFintech.
The interest rate on a loan against mutual funds varies by lender. On smallcase, you can get a LAMF for up to 36 months at a competitive interest rate starting at 9.99% p.a.
If you want a detailed list of who can apply for LAMF, read our article on ‘Who can apply for LAMF?’ to make sure you check all the boxes.
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Documents Required for a Loan Against Mutual Funds
Applying for a Loan Against Mutual Funds via smallcase is fully paperless. All you need is:
- PAN: if not already linked to your smallcase account
- Registered email or phone number: to fetch your MF holdings via CAMS or KFin
No proof of address, employment, or separate MF ownership documents is required. Your identity is verified via PAN, and your holdings are pulled automatically using your registered contact details.
How Much Loan Will You Get Against Mutual Funds?
The amount that you have withdrawn or the outstanding loan amount cannot be greater than 45% of the pledged equity mutual funds and 85% of the pledged debt mutual funds. The loan amount depends on the value of the mutual funds you will keep as collateral. However, you can avail a digital loan against mutual funds (LAMF) at smallcase, ranging from ₹25,000 to ₹5,00,00,000.
How Do You Calculate Your Monthly Interest on LAMF?
One of the key features of LAMF is that interest is charged only on the amount you actually withdraw, not on your entire credit limit. Here is how the calculation works.
Take your outstanding loan amount and multiply it by the annual interest rate. Divide that result by 12 to arrive at your monthly interest amount.
For example, if you have withdrawn ₹1,00,000 at an interest rate of 9.99% per annum, your monthly interest comes to roughly ₹833. If you withdraw nothing that month, no interest is charged. You can use the LAMF interest calculator to estimate your monthly outgo based on your withdrawal amount.
Since interest accrues only on the outstanding principal, repaying early reduces your interest outgo. There are no prepayment charges.
What Happens After You Pledge Mutual Funds?
Pledging mutual funds does not mean you lose ownership of your investments.
- Lien Marking on Units: The lender places a lien on your mutual fund units. This gives the lender a claim over them until the loan is repaid.
- Investments Continue to Earn Returns: Your mutual funds remain invested. They continue to generate returns and dividends during the loan period.
- Restriction on Redemption: You cannot sell or redeem pledged units until the loan is closed. This ensures the lender’s security remains intact.
- Continued Investment Allowed: You can continue investing in the same mutual funds even after pledging existing units.
- Release After Loan Closure: Once you repay the loan completely, the lender removes the lien and releases your units.
What Happens If Your Fund Value Falls (LTV Breach)?
Since your credit limit is tied to the market value of your pledged funds, a fall in fund prices can push your outstanding loan above the permitted loan-to-value (LTV) limit. For equity mutual funds, the maximum LTV is 45%. For debt mutual funds, it is 85%.
Here is a simple example to understand this. Say you pledge equity mutual funds worth ₹1,000 and borrow ₹450 against them (45% LTV). If the value of your funds drops to ₹900, your eligible loan limit falls to ₹405. But your outstanding amount is still ₹450. That creates a shortfall of ₹45 that you need to make good.
When this happens, Bajaj Finance notifies you and gives you 7 days to repay the excess amount and bring your LTV back within the allowed limit. If you do not repay within those 7 days, Bajaj Finance holds the right to liquidate your pledged mutual fund units to recover the outstanding amount.
Your funds can also be liquidated if the full outstanding principal is not repaid by the end of your 3-year loan tenure.
The best way to protect against this is to keep a buffer between your outstanding loan and your credit limit, especially if your portfolio has a high allocation to equity funds.
Key Features of Loan Against Mutual Funds
A loan against mutual funds is a structured borrowing facility in which your investments serve as collateral while you remain invested.
- Minimum and Maximum Loan Amount: LAMF allows borrowing from ₹25,000 to ₹5 cr. The final amount depends on the value and type of mutual funds you pledge.
- Loan Tenure: Typically up to 36 months. This gives borrowers enough time to manage repayments without immediate pressure.
- Interest Charged Only on Utilised Amount: Interest does not apply to the full sanctioned amount. It applies only to the amount you withdraw. This structure helps control borrowing costs.
- Quick Disbursement: Once the application is complete and verified, lenders usually disburse funds within 2 working hours. This makes LAMF useful for urgent liquidity needs.
- Digital and Paperless Process: The application process remains fully digital. Most lenders require only PAN and registered contact details linked to mutual fund holdings.
- No Foreclosure Charges: Borrowers can repay the loan at any time without incurring foreclosure or prepayment charges. This adds flexibility to loan management.
Factors You Should Consider Before Investing in a Loan Against Mutual Funds
Here are some of the factors that you should consider before investing in a mutual fund loan:
- Be Clear About Your Investment Objectives & Risk Tolerance: Before opting for a loan against mutual funds for quick liquidity, clarify your financial goals and risk tolerance. With LAMF, you can fund short-term goals, make big-ticket purchases like buying a car, house or even meet financial emergency needs without any hassle by keeping your risk tolerance in check.
- Impact on Investment Portfolio and Returns: If you fail to repay the low-interest loan against mutual funds, the lender has the right to sell your investments to recoup their losses. So when your investments are liquidated to cover the defaulted loan, you lose control over your asset allocation. As a result, this can disrupt your long-term investment strategy and negatively affect the growth and diversification of your portfolio. Therefore, it is important to carefully consider the implications of using your investments as collateral before borrowing against mutual funds.
- Risks Associated with Loan Defaults and Margin Calls: If you cannot repay the loan, the lender may call a margin call. This means they will require you to either add more collateral or sell some of your investments to cover the outstanding balance. Therefore, it is advisable to consult a financial advisor before opting for LAMF.
- Importance of Understanding Loan Terms and Conditions: Before you take out a loan against your mutual funds, it is important to understand the interest rate, the repayment period, and the risks of defaulting on the loan. At smallcase, the default loan tenure is 36 months, which gives borrowers ample time to repay. Additionally, if one decides to close the loan early, no foreclosure charges will be applied.
What are the Benefits of Investing in Loan Against MFs?
There are several benefits of opting for a digital loan against mutual funds. Some of them are as follows:
- Quick Access to Cash: By pledging your mutual fund units as collateral, you can opt for LAMF. With a predetermined limit based on the fund type, you can access cash quickly whenever you need it without selling your fund units. At smallcase, funds are credited to your bank account within 2 working hours once verification is complete.
- Lower Interest Rates: Compared with credit card and personal loan interest rates, the interest rate on LAMF is typically lower. At smallcase, the loan interest rate against mutual funds starts from 9.99% p.a., charged on the outstanding amount. By opting for a loan against investment funds, you can save more money on interest payments compared to other loan alternatives.
- 100% Digital & Paperless Process: Applying for a loan in India is one of the most challenging procedures. But not anymore. When you apply for mutual fund loans via smallcase, the process takes just 5 minutes. This digital process has helped borrowers to meet their financial needs without selling their investments.
- Flexible Repayment Terms: LAMFs typically have flexible repayment terms. This means you can choose the repayment period that best suits your needs. At smallcase, you can make the repayments at any time before the end of your loan tenure with zero foreclosure charges.
Therefore, to learn more about the loan against mutual funds features and benefits, read our learning article on ‘LAMF Features and Benefits’.
What Can You Use a Loan Against a Mutual Fund For?
Similar to how you take a loan against gold, house, car, or any other collateral to meet your financial needs, you can opt for a loan against mutual funds online without compromising the long-term investment objectives. You can avail a LAMF due to various reasons, some of which have been listed below:
Financial Emergency
Financial emergencies like unexpected medical expenses, impromptu travel plans, or the loss of a source of income can hit us at any time. Therefore, when faced with a financial emergency, opting for a loan against mutual funds for emergency or business can be a strategic option compared to redeeming the investments outright. A LAMF allows you to access the required funds quickly while preserving the long-term growth potential of your mutual fund portfolio. This enables you to face situations like these with confidence by keeping your portfolio intact.
Downpayment for High Ticket Loans
Making big-ticket purchases like cars or homes can be financially challenging, even with the help of specific loans. Even if the initial expenditures are covered by the loan, you may end up paying considerable amounts out of your pocket for your day-to-day expenses. In such cases, opting for a digital loan against mutual funds can be a good option. LAMF allows you to get a loan using your mutual fund investments as collateral. This means you don’t have to exit your investments or put them on hold to fund these purchases.
Alternative to Unsecured Loans
Unlike unsecured loans like personal loans, LAMF is a secured loan where you can pledge your mutual fund investments as collateral to access the required funds without disrupting your long-term investment portfolio. This allows your investments to continue growing through compounding returns, rather than cashing out prematurely. Additionally, the interest rates on LAMFs are generally lower than those on credit cards or unsecured loans, resulting in significant interest savings over the life of the loan. LAMF lenders also often provide flexible mutual fund loan repayment terms that can be tailored to your financial situation, unlike the rigid structures of many other borrowing options. Read our blog on ‘Loan Against Securities or Personal Loan – Which is Better?’ to learn more about how taking a loan against assets or securities is much better than opting for a personal loan.
Dealing with Debt
Dealing with multiple high-interest debts can be a financial burden that can lead to mental exhaustion. In this situation, LAMF is an effective solution for borrowers to consolidate their debts and simplify debt management. Since the interest rate on LAMF starts from 9.99% p.a., which is lower than the interest rates on unsecured loans, it could also lower the interest rates you’re paying on each individual loan and help you pay off your debts faster.
How to Close LAMF?
Once you have repaid the principal amount and any interest due for the current month, you have the option to either close the loan entirely or maintain the mutual fund credit limit. If you choose to keep the credit limit, you can withdraw funds again whenever needed, paying interest only on the amount withdrawn. This means you’ll continue to pay zero interest when funds are not being utilised.
However, if you choose to close the loan entirely, you will have the option to get the collateralised mutual funds unpledged, allowing you to redeem or sell these investments if desired. Flexible repayment options combined with the ability to access funds at any time without incurring additional charges make LAMF an attractive option.
At smallcase, you can simply request a loan closure from the help section of your ‘Loan Dashboard’. If there is no outstanding amount on the mutual fund dashboard, your pledged mutual funds will be released, and the loan will be closed. You can also reach out to the support team for better help.
To Wrap it Up…
To conclude, Loan Against Mutual Funds (LAMF) is a flexible and versatile secured loan that helps borrowers achieve their financial goals without compromising their long-term investment plans. By leveraging the value of their mutual fund holdings, individuals can access much-needed funds all while continuing to benefit from the growth potential of their investments. With a 100% digital & paperless process, lower interest rates, flexible repayment terms, and the ability to retain ownership and control over the mutual fund portfolio, opt for LAMF via smallcase to embrace the simplicity of taking loans.
All About Loan Against Securities & Loan Against Mutual Funds on smallcase –
smallcase offers quick and easy disbursement of loans against mutual funds ( LAMF). Explore all about the eligibility criteria, documents required, features, and benefits of a Loan against mutual funds on smallcase
Frequently Asked Questions About LAMF
A loan against mutual funds is a type of Loan Against Securities (LAS). Unlike a loan against shares, an LAMF is a secured loan in which you pledge your mutual fund holdings to meet your financial needs. The lender holds these mutual fund units as collateral until the loan amount is repaid. Unlike traditional loans, the interest rate on LAMF is potentially lower, helping borrowers save on interest costs.
Yes, you will continue to receive dividends even if you’ve taken an instant loan against your mutual funds. However, you may not be able to sell/redeem them, as the pledged mutual fund units serve as collateral for the lender. If you wish to sell/redeem the best mutual funds in India, you must repay the loan amount.
A lien on mutual funds is a legal right that allows a lender to take possession of the funds. When you opt for an LAMF, the lender marks a lien. This means the lender has the right to sell your mutual funds to recover the outstanding loan balance if you fail to repay it.
To remove the lien on pledged mutual fund units, the borrower must repay the outstanding loan amount and any accrued interest. The lender then sends a request to the mutual fund registrar to remove the lien, allowing the borrower to freely sell/redeem the units again. The process is typically straightforward upon full repayment of the loan.
An overdraft or OD against mutual funds (LAMF) refers to the ability to withdraw funds up to a pre-approved limit against the value of your pledged mutual fund units.
A loan against mutual funds usually comes with a fixed loan tenure set by the lender. At smallcase, the default loan tenure is 36 months, and borrowers can close the loan earlier without foreclosure charges.
Lenders usually accept eligible mutual fund schemes registered with supported RTAs such as CAMS. With smallcase, users can access over 6,000 mutual fund schemes registered with CAMS for a loan against mutual funds.
If the value of pledged mutual fund units drops, the lender may ask the borrower to add more collateral or repay part of the loan. This is called a margin call and helps maintain the required loan-to-value ratio.
Pledged mutual fund units can be released once the borrower repays the outstanding loan amount and applicable charges. After repayment, the lender asks the fund house or RTA to remove the lien from the units.
No, not every mutual fund can be used as collateral. Lenders accept only eligible schemes based on their internal policies, fund type, liquidity, and RTA support. The approved list may differ across lenders.
