Who Can Get a Loan Against a Mutual Fund (LAMF)? – Eligibility, Interest Rate & More
A Loan Against Mutual Funds (LAMF) is a secured loan where you pledge your mutual fund units as collateral and borrow against their current market value. Unlike redeeming your investments, pledging lets you access liquidity while staying invested. The lender places a lien on the units, meaning you cannot sell or redeem them during the loan term, but you retain ownership throughout.LAMF is offered by banks and NBFCs across India.
Eligibility criteria, approved fund lists for LAMF, and loan terms vary across lenders. This article explains the general criteria to apply for a loan against mutual funds, the type of mutual funds that can be pledged, how credit limits are calculated, and how you need to apply.
Who is Eligible for a Loan Against Mutual Funds?
The basic eligibility criteria are broadly similar across most lenders, though specific requirements, such as age limits and account type restrictions, vary by platform.
| Criterion | General Requirement | On smallcase |
|---|---|---|
| Residency | Resident Indian | Resident Indian only; NRI applications not accepted |
| Age | Minimum 18 years; upper limit varies by lender (typically 70-90) | 18 to 70 years |
| Employment type | Salaried or self-employed; no restrictions on profession | Salaried or self-employed |
| Account type | Individual or joint (varies by lender) | Individual account holders only; joint folios not eligible |
| Credit score / CIBIL | Not always required; loan is secured against fund value | No hard CIBIL check; checking eligibility does not affect credit score |
| Minimum loan amount | Varies; typically Rs 10,000-25,000 | Rs 25,000 |
Residency and Age
Most lenders restrict LAMF to resident Indians. Some lenders accept NRI applications, but with different eligibility terms and a narrower list of eligible fund types. The minimum age across lenders is generally 18 years. The upper age limit varies, some lenders accept applicants up to 90 years old, while others cap it at 70.
Employment Type
There are no restrictions on the nature of employment or business. Salaried individuals, freelancers, business owners, and self-employed professionals are all eligible, provided they meet the other criteria. Income proof is generally not required since the loan is secured against the value of mutual fund units.
Account Type
Most lenders allow applications from individual account holders. Some also extend the facility to non-individual entities such as HUFs, partnership firms, trusts, and companies — typically with higher loan limits and additional documentation requirements. Eligibility for joint account holders varies: some lenders require all joint holders to be co-applicants, while others restrict the facility to sole-holder folios only.
Credit Score
Since LAMF is a secured loan, lenders primarily assess the value and type of the pledged mutual funds rather than the applicant’s credit history. Many lenders do not require a minimum credit score. Some may reference your credit profile for higher loan amounts, but it is generally not a gating criterion.
What Is Not Eligible to Apply for a Loan Against Mutual Funds?
The following are generally not accepted as collateral across most lenders:
- ELSS (Equity Linked Savings Scheme) units under the mandatory 3-year lock-in cannot be pledged until the lock-in expires
- Close-ended mutual fund schemes
- Funds not on the lender’s approved list
- Units already pledged with another lender
Platform-specific restrictions may apply in addition to the above. On smallcase, units held in a non-Zerodha demat account and jointly-held folios are also not eligible.
Note: ELSS units that have completed the 3-year lock-in period may be pledgeable with some lenders, subject to their approved list. Confirm with your lender directly.
How Is the Credit Limit Calculated?
Your credit limit is determined by the Loan-to-Value (LTV) ratio applied to the current market value of your pledged funds. LTV ratios differ by fund type:
| Fund Type | On smallcase |
|---|---|
| Equity mutual funds | 45% of the current market value |
| Debt mutual funds | 75% of current market value (max LTV 85%) |
Example: Rs 2,00,000 in eligible equity funds gives a credit limit of Rs 90,000 at 45% LTV. Rs 2,00,000 in eligible debt funds gives a credit limit of Rs 1,50,000 at 75% LTV.
The credit limit updates with market movements. If the NAV of your pledged funds declines after disbursement, the eligible limit is reduced proportionally. Interest is charged only on the amount you actually draw from the credit line, not on the full sanctioned limit. On smallcase, interest starts at 9.99% p.a. on the outstanding drawn amount.
Documents and Details Required
LAMF requires minimal documentation. Most lenders offer a fully digital process. The standard requirements are:
| What Is Required | Purpose |
|---|---|
| PAN card | KYC verification and identity confirmation |
| Aadhaar or valid identity proof | Address and identity verification (requirements vary by lender) |
| Date of birth | Age eligibility check |
| Phone number registered with your mutual fund folios | To fetch holdings from KFintech-serviced funds |
| Email address registered with your mutual fund folios | To fetch holdings from CAMS-serviced funds |
| Bank account details | Loan disbursal and monthly interest auto-debit setup |
Income proof is generally not required. The loan is secured against the value of your pledged units, so lenders verify the fund portfolio rather than income.
How to Apply for LAMF?
The application process is digital with most lenders. The general steps are:
- Log in to smallcase Credit: Visit smallcase Credit and select Loan Against Mutual Funds to check your credit limit.
- Import MF holdings: Connect your mutual fund holdings using your PAN, registered email ID, or phone number.
- Check eligible funds: View the list of eligible mutual funds available for pledging.
- Select funds to pledge: Choose funds as collateral and review your credit limit.
- Link your bank account: Add bank details for disbursement and set up an e-mandate for interest payments.
- Pledge your mutual funds: Selected units are lien-marked while remaining in your folio or demat account.
- Sign the loan agreement: Review the terms and sign digitally using OTP verification.
- Receive the loan amount: The amount is usually credited within 2 working hours after signing.
To Wrap It Up…
LAMF is broadly accessible to resident Indian individuals who hold eligible mutual fund units. The key determining factors are the type of fund, the registrar it is held with, and whether the specific scheme is on the lender’s approved list. Eligibility criteria, approved fund lists, and loan terms vary across lenders, so it is important to verify current requirements directly with the lender before applying. You can also explore smallcase loan against mutual funds that starts with an interest rate of 9.99% p.a. with a fully digital process.
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 Who Can Take Loan Against Mutual Funds
While the loan limit varies from lender to lender and is based on the value of your mutual funds used as collateral. However, at smallcase, you can avail a loan against mutual fund interest rate of 9.99% p.a. for the loan amount from ₹25,000 to ₹5 cr. for online transactions. As always, it is advisable to check with your preferred lender before opting for a loan.
Yes, if you meet the eligibility criteria for the LAMF, then the application process via smallcase takes less than 5 minutes. With minimum documentation, it is relatively easy to pledge mutual funds for a loan.
Yes. You can opt for a digital loan against mutual funds for businesses and individuals via smallcase. It is a 100% digital and paperless process which helps borrowers to apply for a loan without submitting a list of documents.
The exact loan term depends on the lender’s policies and the borrower’s repayment capacity and their repayment options for LAMF. At smallcase, the default tenure of the loan is 36 months. During this period, one can make part-prepayments and close the mutual fund loan for salaried individuals and self employed people alike, early with zero foreclosure charges.
Eligibility for a mutual fund loan depends on factors like fund type, ownership structure, minimum portfolio value, and lender-specific criteria. KYC compliance, creditworthiness, and fund house approvals also play a role. Some lenders may require a lien-marked account or they may need mutual fund lien marking. Checking with financial institutions helps determine qualification based on specific terms.
The loan-to-value ratio for mutual fund loans, or LTV, determines the percentage of a fund’s market value that can be borrowed. On smallcase, the LTV is 45% for equity funds and 75% for debt funds. Interest is charged only on the amount drawn, not on the full sanctioned credit limit.
There will be no changes with respect to tax consideration for the shares provided as collateral for securing the loan. There would be a change of duration for calculating capital gains only if the shares are unpledged and sold by the investor, or if the shares are confiscated by the lender.
