What Makes LAMF a Smarter Borrowing Option in India?
To meet your unplanned financial expenses, you can now opt for Loan Against Mutual Funds (LAMF). Unlike personal loans, which can impact your credit score, LAMF is a secured loan collateralised by your mutual fund holdings. This unique feature ensures that your credit profile remains unaffected, preserving your ability to access other financing options in the future. In this blog, we’re going to discuss why one may opt for LAMF, the loan against mutual funds application process, and how it differs from other traditional loans.
What is a Loan Against Mutual Funds?
A Loan Against Mutual Funds, or LAMF, lets you borrow money by using your mutual fund units as security. You do not have to sell your investments to access funds.
With smallcase, you can place a lien on your mutual funds digitally and access funds at an interest rate starting from 9.99% p.a. It works like an overdraft, so you can use the approved limit as needed and repay based on your usage. There are zero foreclosure charges and no penalties.
smallcase supports 6,000+ approved schemes across equity, debt, and hybrid funds. These schemes are registered with RTAs such as CAMS and KFintech, formerly known as KARVY.
For details on who can apply and what documents are needed, you can refer to the eligibility and documents section before checking your LAMF eligibility.
How to Get a Loan Against Mutual Funds?
- Log in to smallcase Credit: Visit smallcase Credit and click on Against Mutual Funds to check your credit limit.
- Check eligible funds: View SBI mutual funds and other eligible holdings available for pledging.
- Select funds to pledge: Choose funds as collateral and check the credit limit.
- Link your bank account: Add bank details for disbursement and set up an e-mandate.
- Pledge your mutual funds: Selected units are lien-marked while staying in your folio or demat account.
- Sign the loan agreement: Review, verify with OTP, and sign online.
- Receive the loan amount: The amount is usually credited within 2 working hours after signing.
How Much Loan Can You Get Against Your Mutual Funds?
Your credit limit depends on the type of mutual funds you pledge and their current market value. Bajaj Finance, the lending partner on smallcase, applies a loan-to-value (LTV) ratio to calculate how much you can borrow.
| Fund Type | Credit Limit (LTV) |
| Equity mutual funds | 45% of the current market value |
| Debt mutual funds | 75% of the current market value |
To put this in plain terms: if you hold equity mutual funds worth ₹2 lakh, your credit limit works out to ₹90,000. If you hold debt mutual funds worth ₹2 lakh, your credit limit goes up to ₹1,50,000.
On smallcase, you can borrow anywhere between ₹25,000 and ₹5,00,00,000 — the exact amount depends on the value and type of your eligible mutual fund holdings.
How Does Monthly Interest Work on LAMF?
Monthly interest is auto-debited from your linked bank account on the due date. You only pay interest on the outstanding principal — not on the full credit limit.
Formula: Outstanding Amount × (Rate / 12) / 100
Example: ₹1,00,000 outstanding @ 9.99% p.a. → monthly interest ≈ ₹833. Want to estimate your interest outgo? Try the interest calculator.
Advantages of a Loan Against Mutual Funds
When considering financial options, the best loan against mutual funds can offer several advantages:
- Quick Access to Funds: With a loan against debt mutual funds or equity mutual funds, you can access required funds by using mutual funds as collateral by pledging them. Thus, if you meet the secured loan against mutual funds eligibility criteria and have a sufficient amount of mutual fund holdings to take a loan on mutual fund units, then opt for a loan against mutual funds for emergency or otherwise at smallcase, where funds get credited to your account in just 2 working hours once the verification is done.
- Retain Investment Portfolio: One of the most significant benefits of a loan against mutual funds for urgent needs is that it keeps your mutual fund investments intact. Although you cannot sell/redeem the pledged mutual fund units, you may continue to earn a loan against mutual fund returns during the default mutual fund collateral loan tenure of 36 months.
- Wide Range of Mutual Funds: You can potentially access 8,000+ mutual fund schemes. Here is a list of eligible mutual funds you can refer to while pledging your mutual funds.
- Flexible Repayment Options: Lenders often offer flexible repayment terms for mutual fund loans, allowing you to tailor the repayment schedule to your financial situation. At smallcase, you can prepay your loan amount at zero foreclosure charges at any time before the end of the secured mutual fund borrowing-against-securities tenure.
To learn more about the loan against mutual funds features and benefits, refer to our learn article on ‘LAMF Features and Benefits’ for a better understanding.
Types of Traditional Loans
Personal Loan
A personal loan is an unsecured loan that lets individuals borrow a fixed amount from a bank, credit union, or online lender. People often use it for debt consolidation, home renovation, medical bills, weddings, vacations, or sudden expenses.
A personal loan does not require collateral. Lenders usually check the borrower’s credit score and repayment ability before approving the loan. Since it is unsecured, the interest rate can be higher than for other loan types, typically 13% to 20%, depending on the borrower’s credit profile and lender.
Consumer Loan
A consumer loan helps individuals finance consumer goods or services. People may use it to buy electronics, appliances, furniture, or to pay for a vacation or medical expenses.
These loans are usually unsecured and depend on the borrower’s creditworthiness and ability to repay. The interest rate on consumer loans usually ranges between 11% and 19%. Borrowers should review the loan terms and the monthly repayment amount before taking this loan.
Auto Loan
An auto loan, also called a car loan or vehicle loan, is a secured loan used to buy a new or used private vehicle. The vehicle acts as collateral for the loan.
Since the loan is backed by the vehicle, lenders may offer lower interest rates compared to unsecured loans. Auto loan interest rates usually range between 9% and 13%. The final rate depends on the borrower’s credit score, loan tenure, vehicle type, and lender.
Loan Against Mutual Funds via smallcase
At smallcase, users can opt for a quick loan against mutual funds for personal or business use at an interest rate starting at 9.99% p.a. The funds can get credited to the linked bank account in just 2 working hours.
Users do not need to sell their investments to access funds. Their mutual fund units remain pledged, and they can continue to earn returns on them.
To Wrap It Up…
LAMF has simplified borrowing with quick access to funds at a competitive interest rate, which is lower than that of many traditional loans. It has helped investors pledge their mutual funds with minimal impact on their CIBIL score. By using LAMF as a credit line, investors can achieve short-term financial goals without liquidating investments.
If you’re looking to get started, you can apply for a Loan Against Mutual Funds directly via smallcase, with disbursement in as little as 2 working hours, no foreclosure charges, and zero 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 on LAMF
A digital loan against mutual funds is an online borrowing facility where mutual fund units are pledged as collateral. The process usually includes importing MF holdings, selecting eligible funds, linking a bank account, setting up an e-mandate, pledging units, and signing the loan agreement digitally. The pledged funds remain invested and cannot be redeemed until the loan is closed.
A loan against a mutual fund SIP or lump sum enables individuals to access funds quickly without disrupting their investments. Additionally, interest is levied only on the utilised loan amount, with minimal impact on the CIBIL score typically associated with loans.
Disclaimer: A loan against a mutual fund SIP or lump sum enables individuals to access funds quickly without disrupting their investments. Additionally, interest is levied only on the utilised loan amount, with minimal impact on the CIBIL score typically associated with loans.
At smallcase, you can avail a digital loan against mutual funds from ₹25,000 to ₹5,00,00,000 with a default loan tenure of 36 months. However, if you wish to close the loan early, you can do so at any time with no foreclosure charges.
Yes. Mutual funds held in non-demat form, i.e., only those held in the Statement of Accounts (SoA) or in physical form, can be used to take a loan. Moreover, your mutual funds must be on the lender’s list of eligible funds.
If you have pledged mutual funds with no intention of opting for a loan against equity mutual funds or debt funds, contact customer care and raise a request for removal. Please note that ₹500 will be applied as a lien removal charge.
Usually, foreclosure charges vary from 2% to 3%. However, at smallcase, there are no foreclosure charges applied to the low-interest mutual fund loan.
There will be no changes regarding tax considerations for the pledged mutual funds. There would be a change of duration for calculating capital gains tax only if the mutual funds are unpledged and sold by the client, or if the lender confiscates the mutual funds.
LAMF may have lower interest rates than a personal loan because it is backed by mutual fund investments as collateral. It may also offer flexible repayment, in which interest applies only to the amount used. A personal loan does not require collateral but may have a higher interest rate and fixed EMIs. The suitable option depends on the borrower’s liquidity needs, repayment capacity, investment goals, and risk tolerance. You can also read more on loan against securities vs personal loan to help make an informed decision.
Disclaimer: This information is for educational purposes only and should not be treated as financial advice. Borrowers should review loan terms carefully and consult a financial advisor before making a decision.
