Understanding Loan Against Mutual Funds (LAMF) in India
Investing in mutual funds offers convenience, diversification, and potential long-term gains. Mutual funds can also give you financial flexibility when you need cash. 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 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 Securities, or LAS. It lets you use your mutual fund investments as collateral to get a loan from a bank, NBFC, or other lender. The loan works like an overdraft facility: the lender sets a borrowing limit based on the value of your mutual fund units.
On smallcase, you can take a digital loan against mutual funds at an interest rate starting from 9.9% p.a., which is lower than many traditional loans. LAMF on smallcase is offered by Bajaj Finance, South Indian Bank and DSP Finance. The digital process removes lengthy paperwork and can be completed in a few minutes on the smallcase app.
You can choose from 7,000+ approved mutual fund schemes across equity, debt and hybrid categories. With LAMF, you do not need to sell or redeem your mutual fund investments, and your pledged units continue to earn returns.
How to Apply for Loan Against Mutual Fund?
You can apply for a loan against mutual funds within a few minutes, on smallcase. Here are the steps:
- Check your credit limit: Visit smallcase Credit and click on ‘Against Mutual Funds’ to check your credit limit. This does not affect your CIBIL score.
- Import your mutual funds: Fetch your eligible mutual fund holdings, whether held with Mutual Fund Companies or in demat form in a Zerodha demat account.
- Link your bank account: Add your bank details for disbursal and set up an auto-debit mandate for monthly interest.
- Pledge with the lender: Your units are lien-marked in favour of the lender while staying invested in your name.
- Sign the loan agreement: Review the terms, verify with OTP, and sign the agreement online. A hard credit check happens at this stage.
- Receive the loan amount: Once verification is complete, the funds are credited to your bank account.
Note: Pledged units cannot be redeemed while they are under lien. As you repay the loan, you can unpledge units to the extent of the amount repaid.
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How Does a Loan Against Mutual Funds Work?
A loan against mutual funds is a secured facility that lets you access funds quickly by using your existing mutual fund investments. You pledge your mutual fund units as collateral, and the lender asks the Mutual Fund Company to place a lien on a specific number of units.
The lien applies to the number of units pledged within each scheme. Your pledged funds continue to earn returns, but you cannot redeem units while they are under lien.
As you repay, you can partially release the lien up to the amount repaid, freeing some units while the rest remain as collateral. Once you repay the loan in full and close it, the lien is removed from all your units.
Types of Mutual Funds Eligible for LAMF on smallcase
LAMF on smallcase supports 7,000+ approved mutual fund schemes across equity, debt, and hybrid categories. Schemes from all AMCs can be eligible, subject to the lender’s approved list, lock-in status, and pledge status. Mutual funds held in demat form in a Zerodha demat account are also eligible.
- Equity Mutual Funds: Equity mutual funds are eligible if they are on the lender’s approved list.
- Debt Mutual Funds: Debt mutual funds on the approved list are eligible, with a credit limit of up to 85% of the market value.
- Hybrid Mutual Funds: Hybrid mutual funds can qualify if they appear on the approved list. Their credit limit depends on the fund’s equity and debt allocation.
- Funds That Are Not Eligible: ELSS funds within their 3-year lock-in period, funds not on the lender’s approved list, and units already pledged to another lender.
What is Lien Marking on Mutual Funds?
Lien marking gives the lender a claim on your pledged mutual fund units when you take a loan against them. It authorises the lender to recover dues from those units if you do not repay the loan as agreed.
On smallcase, the lien is marked digitally when you pledge your holdings with the lender. Ownership stays with you.
As you repay, you can release the lien on units to the extent of the amount repaid. If you do not 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)?
Charges and interest rates for LAMF vary from lender to lender. The main costs to look at are:
- Interest Rate: LAMF is typically cheaper than personal loans or credit cards. Across the market, rates can range from 8% to 18% per annum. On smallcase, the interest rate on a loan against mutual funds starts from 9.9% p.a., charged only on the outstanding amount.
- Processing Fee: A one-time fee charged when you take the loan. It varies by lender.
- Early Repayment Fee: Some lenders charge for early repayment, so read the terms carefully. On smallcase, there are no foreclosure or part-payment charges.
For the complete, current breakdown of processing fees and other charges by lender, see LAMF fees and charges.
Who Can Apply for a Loan on Mutual Funds?
To take a digital loan against mutual funds, you first need mutual fund holdings. It also helps to know the eligibility criteria and documents required, so the application goes smoothly.
You must be between 18 and 75 years of age at the time of application. Joint holdings are eligible, but a co-borrower form must be signed physically and sent to the lender.
Loan Against Mutual Funds Eligibility
LAMF is a flexible financing option built for a wide range of individuals. Whether you are salaried or self-employed, you can apply. To be eligible, you need to be between 18 and 75 years old and have an active PAN card linked to your bank account. You can borrow from ₹10,000 up to ₹5 cr, depending on the lender, against approved mutual funds held with Mutual Fund Companies or in demat form in a Zerodha demat account.
The interest rate varies by lender. On smallcase, LAMF interest rates start from 9.9% p.a.
Disclaimer: The eligibility criteria above is as of 11th October 2026 and are subject to change. For the latest information, visit our help centre.
Documents Required for a Loan Against Mutual Funds
Applying for a Loan Against Mutual Funds via smallcase is paperless for individual holdings. All you need is:
- PAN: if not already linked to your smallcase account
- Registered email or phone number: to fetch your mutual fund holdings
No proof of address, employment, or separate ownership documents is required. Your identity is verified via PAN, and your holdings are fetched using your registered contact details. Joint holdings need a co-borrower form signed physically.
How Much Loan Will You Get Against Mutual Funds?
You can borrow from ₹10,000 up to ₹5 cr through smallcase. Limits vary by lender:
| Lender | Minimum | Maximum |
| Bajaj Finance | ₹25,000 | ₹5 cr (digitally) |
| South Indian Bank | ₹10,000 | ₹1 cr |
| DSP Finance | ₹10,000 | ₹2 cr |
Your actual credit limit depends on the value and category of the funds you pledge.
Disclaimer: The fees and charges above are as of 11th October 2026 and are subject to change. For the latest information, you can read our article on LAMF Fees and Charges.
How Do You Calculate Your Monthly Interest on LAMF?
Interest is charged only on the amount you actually withdraw, not on your entire credit limit. It accrues daily and is auto-debited on the 7th of every month (or within the next 3 working days).
For a quick estimate, multiply your outstanding amount by the annual interest rate and divide by 12. For example, if you withdraw ₹1,00,000 at 9.9% per annum, your monthly interest is roughly ₹825. The exact amount depends on the number of days in the month. If you withdraw nothing, no interest is charged. Use the LAMF interest calculator to estimate your monthly outgo.
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 pledged units, giving it a claim over them while the loan is outstanding.
- Investments Continue to Earn Returns: Your mutual funds stay invested and continue to generate returns and dividends during the loan period.
- Redemption Only After Unpledging: You cannot redeem units while they are under lien. As you repay, you can unpledge units to the extent of the amount repaid.
- Continued Investment Allowed: You can keep investing in the same mutual funds after pledging existing units.
- Release After Loan Closure: Once you repay the loan completely and close it, the lien is removed from all your units.
What Happens If Your Fund Value Falls (LTV Breach)?
Your credit limit is tied to the market value of your pledged funds, so a fall in fund prices can push your outstanding loan above the permitted loan-to-value (LTV) limit. For debt mutual funds, the maximum LTV is 85%.
Say you pledge debt mutual funds worth ₹1,000 and borrow ₹850 against them (85% LTV). If the value of your funds drops to ₹900, your eligible loan limit falls to ₹765. Since your outstanding amount is still ₹850, a shortfall of ₹85 is created.
When this happens, your lender notifies you to repay the shortfall or pledge more eligible funds within the time it specifies. If the shortfall is not covered in time, the lender can sell part of your pledged units to recover the amount.
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
- Minimum and Maximum Loan Amount: Borrow from ₹10,000 to ₹5 cr, depending on the lender and the value and type of funds you pledge.
- Interest Charged Only on Utilised Amount: Interest applies only to the amount you withdraw, not the full sanctioned limit.
- Digital and Paperless Process: The application is fully digital for individual holdings, needing only PAN and the contact details linked to your mutual fund holdings.
- No CIBIL Impact to Check Your Limit: Checking your credit limit does not affect your CIBIL score. A hard credit check happens when you apply and sign the loan agreement.
- Partial Unpledging: Release pledged units to the extent of the amount you have repaid.
- No Foreclosure Charges: Repay any amount or close the loan at any time without foreclosure or part-payment charges.
Factors to Consider Before Taking a Loan Against Mutual Funds
- Be Clear About Your Goals and Risk Tolerance: LAMF can fund short-term goals, big-ticket purchases, or emergencies. Borrow an amount you can comfortably repay.
- Impact on Your Portfolio: If you do not repay, the lender can sell your pledged units to recover dues. This can disrupt your asset allocation and long-term investment plan.
- Margin Calls: If your fund value falls, the lender may ask you to add collateral or repay part of the loan. Keep a buffer to avoid forced selling.
- Understand the Loan Terms: Check the interest rate, repayment terms, and the lender’s charges before you borrow. On smallcase, there are no foreclosure charges if you close the loan early.
Benefits of a Loan Against Mutual Funds
- Quick Access to Cash: Pledge your mutual fund units and get a credit limit you can draw on whenever you need it, without selling your investments.
- Lower Interest Rates: LAMF is typically cheaper than credit cards and personal loans. On smallcase, interest rates start from 9.9% p.a., charged only on the outstanding amount.
- Digital and Paperless: Apply in a few minutes on the smallcase app, without selling your investments.
- Flexible Repayment: Repay any amount of principal whenever you want, with zero foreclosure or part-payment charges.
To learn more, read our article on LAMF Features and Benefits.
What Can You Use a Loan Against a Mutual Fund For?
Just as you can borrow against gold, a house or a car, you can borrow against mutual funds online without compromising your long-term investment goals. Common uses include:
Financial Emergency
Unexpected medical expenses, urgent travel, or a sudden loss of income can hit at any time. A LAMF lets you access funds quickly while your mutual fund portfolio keeps growing, instead of redeeming investments at the wrong time.
Down Payment for High-Ticket Purchases
Big purchases like cars or homes often need a down payment even with a loan. A LAMF can fund it without forcing you to exit your investments.
Alternative to Unsecured Loans
Unlike a personal loan, LAMF is secured by your mutual funds, so rates are generally lower and your investments continue to compound. Read our blog on ‘Loan Against Securities or Personal Loan: Which is Better?‘ to compare.
Dealing with Debt
Juggling several high-interest debts is draining. With LAMF rates starting from 9.9% p.a., consolidating those debts into one lower-cost loan can cut your interest outgo and simplify repayment.
How to Close LAMF?
Once you have repaid the principal and any interest due, you can either close the loan or keep your credit limit. If you keep the limit, you can withdraw again whenever needed and pay interest only on what you withdraw, so you pay nothing when the limit is unused.
If you close the loan, your pledged mutual funds are released, and you can redeem or sell them if you wish.
On smallcase, clear all dues from the servicing dashboard using UPI, debit card or net banking, then tap ‘Close my loan’ in the Help section of your loan dashboard. Your pledged mutual funds will be released and the loan will be closed. You can also reach out to the support team for help.
Need urgent cash? Apply for a loan against mutual funds
To Wrap It Up
A Loan Against Mutual Funds is a flexible secured loan that helps you meet your financial goals without breaking your long-term investments. You keep ownership of your mutual funds, they keep earning returns, and you pay interest only on what you use. With a digital process, rates starting from 9.9% p.a. and no foreclosure charges, you can explore LAMF via smallcase to see your credit limit, with no impact on your CIBIL score.
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). It is a secured loan in which you pledge your mutual fund holdings as collateral. The lender holds a lien on these units while the loan is outstanding. Because it is secured, the interest rate is usually lower than unsecured loans.
Yes, you continue to receive dividends on pledged units. You cannot redeem units while they are under lien, but you can unpledge units to the extent of the amount you have repaid.
A lien is a legal right that lets a lender hold a claim on your pledged mutual fund units. If you do not repay the loan, the lender can sell the pledged units to recover the outstanding balance.
As you repay, you can release the lien on units to the extent of the amount repaid. Once you repay the full outstanding amount and close the loan, the lien is removed from all your pledged units and you can redeem them freely.
An overdraft or OD against mutual funds lets you withdraw funds up to a pre-approved limit against the value of your pledged mutual fund units.
No. Checking your credit limit on smallcase does not affect your CIBIL score. When you apply for the loan and sign the agreement, the lender runs a hard credit check, which can impact your score.
On smallcase, you can choose from 7,000+ approved mutual fund schemes across equity, debt and hybrid categories. Mutual funds held in demat form in a Zerodha demat account are also eligible.
If the value of your pledged units drops, the lender may ask you 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.
You can unpledge units to the extent of the amount you have repaid. All pledged units are released once you repay the full outstanding amount and close the loan.
No. Lenders accept only schemes on their approved list, based on their internal policies, fund type and liquidity. ELSS funds in lock-in and units already pledged elsewhere are not eligible.
If your loan is with Bajaj Finance, you can top it up by pledging more mutual funds or stocks (through a loan against stocks). The loan account stays the same, though the application processes for LAMF and LAS are separate. However, the availability of the topup feature varies from lender to lender so please read your loan agreement carefully to understand whether a topup is possible in your case.
