Simple Guide to Loan Against Mutual Funds for Quick Cash

Let me tell you about a mistake a lot of investors make. Markets fall, some unexpected expense shows up, and instead of thinking clearly, they hit the redeem button on their mutual funds. Done. Investments gone. The market then recovers, and they are left with nothing to show for years of disciplined SIPs.

There is a better way. It is called a loan against mutual funds, and once you understand how it works, you will wonder why no one told you about it earlier.

What Is a Loan Against Mutual Funds?

Simply put, it is a loan where you pledge your mutual fund units as collateral. The fund units stay in your account — they are just lien-marked, meaning you cannot sell them until the loan is repaid. Meanwhile, you get a credit line that you can use for whatever you need.

Your SIPs keep running. Your NAV keeps growing. Your dividends keep coming. You just temporarily cannot sell or switch those units.

How Much Can You Borrow?

With Bajaj Finance, you can borrow up to 90% of the value of your debt mutual funds and up to 50% for equity mutual funds and equity-linked schemes. The loan amount starts from Rs. 10,000 and can go up to Rs. 1,000 crore for individuals. Corporates, HUFs, and other entities can also apply for large amounts.

The difference in LTV between equity and debt funds reflects risk — debt funds are less volatile, so lenders are comfortable lending more against them.

Which Funds Are Eligible?

Bajaj Finance accepts over 5,000 mutual fund schemes from 40+ AMCs, provided they are registered with CAMS or KFin Technology. Equity funds, debt funds, and hybrid funds with good liquidity generally qualify.

However, ELSS funds are not eligible because they have a mandatory 3-year lock-in period. Close-ended schemes and funds nearing maturity are also generally excluded. It is always a good idea to check the approved fund list before applying.

How Does the Process Work?

The application is entirely online. You log in to the Bajaj Finance platform, enter your PAN and basic details, choose which funds you want to pledge, complete your KYC through Digilocker, and verify your bank account. A lien is then marked on your mutual fund units through the RTA — CAMS or KFin. Once verified, the credit line is activated, and you can withdraw from it as needed.

The entire process, from application to disbursal, typically takes 24 to 48 hours. There are no branch visits and minimal paperwork.

Pay Interest Only on What You Use

This is the part that makes the loan against mutual funds genuinely cost-efficient. You do not pay interest on the entire sanctioned limit. You only pay for what you actually withdraw, and only for the duration you hold it. Bajaj Finance charges interest monthly on the utilised amount.

If you need Rs. 3 lakh from a Rs. 10 lakh limit, you pay interest on Rs. 3 lakh. If you repay it in 15 days, you only pay for 15 days. It is flexible like a credit line, not restrictive like a term loan.

Interest rates of loan against mutual funds this facility start from 8% per annum, making it significantly cheaper than a personal loan or credit card. Processing fees are up to 4.72% of the loan amount inclusive of taxes.

What If Your Fund Value Falls?

This is important to understand. Bajaj Finance updates the valuation of your pledged funds every 5 minutes during market hours. If the NAV falls and your LTV breaches the permissible limit, you may receive a margin call — a request to either pledge more units or partially repay the loan.

If the shortfall is not addressed within 7 business days, Bajaj Finance may liquidate a portion of your lien-marked units to restore the required margin. This is not a penalty — it is a standard risk management measure. But it does mean you need to stay mindful of your portfolio value during market downturns.

When Does This Make Sense?

A loan against mutual funds works best when you need liquidity for a short-term purpose — a medical emergency, a business opportunity, a one-time payment — and you do not want to exit your investments. It is not meant for long-term borrowing. The tenure ranges from 7 days to 36 months.

If you have a well-built mutual fund portfolio and find yourself needing quick cash, this is one of the smartest ways to unlock it — without disrupting the journey you started when you began investing. Your past investments deserve better than a premature redemption. Make them work for you instead.