With India's mutual fund industry crossing Rs 82 lakh crore in AUM and over 9 crore active SIP accounts, millions of investors have built significant wealth in their portfolios. Yet when a liquidity need arises, a medical emergency, business shortfall, or a large personal expense, most investors default to redeeming their investments or taking an expensive personal loan.
A Loan Against Mutual Funds (LAMF) offers a third, often overlooked option: access liquidity by pledging mutual fund units as collateral, without selling them. The units stay invested, continue earning returns, and are released back to the investor once the loan is repaid.
1What Is a Loan Against Mutual Funds?
A Loan Against Mutual Funds is a secured credit facility where mutual fund units serve as collateral. The lender places a lien on the pledged units - a digital restriction that prevents redemption, while the investor retains ownership. The units remain in the investor's folio, continue to earn returns, and are released once the loan is fully repaid.
LAMF is typically structured as an overdraft (OD) facility: the investor receives a credit limit and pays interest only on the amount actually withdrawn, not on the total sanctioned limit.
Why LAMF over redemption?
Redeeming mutual funds carries costs that are easy to underestimate:
- Capital Gains Tax: Equity funds held under 12 months attract STCG at 20%. Those held over 12 months attract LTCG at 12.5% on gains above Rs 1.25 lakh.
- Exit Load: Most equity funds levy a 1% exit load on redemptions within one year.
- Lost Compounding: Redeemed units exit the portfolio permanently. Any future growth on those units is forfeited.
Borrowing, on the other hand, is not a taxable transaction. No capital gains tax is triggered when units are pledged, and the holding period continues to run from the original purchase date.
An investor holds Rs 10 lakh in equity funds (held 10 months, grown 15%) and needs Rs 4 lakh for 4 months.
- On redemption: STCG tax on proportionate gains + 1% exit load = approximately Rs 8,000–10,000 in costs, plus the permanent loss of those units and their future growth.
- On LAMF at 10% p.a. for 4 months: Interest cost = Rs 4,00,000 × 10% × 4/12 = Rs 13,333. No tax. No exit load. Units remain invested.
For investors with significant unrealised gains, the interest cost of a short-term LAMF is often lower than the tax liability on redemption.
LAMF vs Personal Loan
| LAMF | Personal Loan | |
|---|---|---|
| Interest rate | 9.99%–13% p.a. | 14%–30% p.a. |
| Credit score required | No | Usually 700+ |
| Collateral | Mutual fund units | None |
| Investments | Stay invested | Not involved |
| Disbursement | Same day | 1–7 days |
2How to Apply for LAMF on SLiQ
SLiQ's application process is fully digital - no branch visits, no physical documents. Most applicants complete the process in under 10 minutes.
- Check eligible credit limitEnter PAN on sliqfin.com. SLiQ scans the portfolio across AMCs and displays the eligible credit limit within seconds. No documents or commitment required at this stage.
- Select funds to pledgeThe applicant selects which fund folios to use as collateral. Only the selected units are pledged - the rest of the portfolio remains unrestricted.
- Digital lien marking via OTPSLiQ coordinates lien marking with CAMS, KFintech, or MF Central - the RTAs that maintain mutual fund unit records. The lien is placed via OTP authorisation. No paperwork or physical signatures required.
- KYC verificationA short Aadhaar-linked OTP-based KYC. Completed in approximately 2 minutes.
- Loan agreementAll terms, interest rate, credit limit, charges, are disclosed upfront. The agreement is signed digitally.
- DisbursalFunds are credited to the registered bank account within a few hours of agreement signing.
Withdrawals and repayments
The credit limit functions as a revolving overdraft:
- Withdrawals can be made anytime (minimum Rs 1,500)
- Repayments can be made anytime with no prepayment penalty
- Each repayment immediately reduces the outstanding balance and restores the available credit limit
3Eligibility Criteria
| Criteria | Details |
|---|---|
| Nationality | Indian resident |
| Age | 18 – 75 years |
| Income proof | Not required |
| Minimum CIBIL score | Not required |
| Minimum portfolio value | Rs 25,000 |
Since the mutual fund portfolio itself serves as security, LAMF does not require income documentation or a minimum credit score.
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4Which Mutual funds are eligible and how Much Can You Borrow?
Most open-ended mutual fund schemes from SEBI-registered AMCs are eligible, including:
- Equity funds: large-cap, mid-cap, small-cap, multi-cap, flexi-cap, index funds
- Debt funds: liquid, overnight, ultra-short-duration, short-duration, corporate bond, gilt
- Hybrid funds: balanced advantage, aggressive hybrid, conservative hybrid
- Sectoral and thematic funds (subject to lender's approved list)
Not eligible
- ELSS funds within the 3-year lock-in period. SEBI regulations prohibit pledging of locked-in ELSS units. Importantly, the lock-in applies per SIP instalment - a March 2022 instalment unlocks in March 2025, while a March 2023 instalment unlocks in March 2026, even within the same folio. Once unlocked, ELSS units are treated like any other equity fund.
- Closed-end fund schemes during their restriction period.
- Any scheme not on the lender's specific approved securities list.
Loan-to-Value (LTV) ratios
The credit limit is calculated as a percentage of the current market value of pledged units:
| Fund Type | LTV |
|---|---|
| Equity funds | Up to 50–70% of current value |
| Debt funds | Up to 80–85% of current value |
| Hybrid funds | Around 50–65% |
SLiQ works with multiple lenders - Jio Financial Services, Bajaj Finserv, ICICI Bank, and Tata Capital, Aditya Birla Capital Limited & more, enabling borrowers to compare rates and LTV ratios before committing.
5Interest Rate and Charges for SLiQ
| Charge | Details |
|---|---|
| Interest rate | Starting at 9.99% p.a. |
| Charged on | Outstanding withdrawn amount only |
| Processing fee | ₹1499/- for 3 years |
| Prepayment / Foreclosure charges | NIL |
6What Happens to Your Mutual Funds After Pledging?
A lien is placed by the lender as a security marker, but your mutual fund units are not moved or sold. They remain in your CAMS or KFintech folio, exactly where they were before you applied.
Dividends declared by the fund are credited to you as usual, and NAV appreciation continues to accrue. Pledging has no effect on the economic benefits of your investment.
You are free to start new SIPs or make lump-sum purchases in the same or any other fund. The lien covers only the specific units you pledged — not your entire mutual fund portfolio.
This is the key constraint. Pledged units are locked — they cannot be redeemed, transferred, or switched until the outstanding loan is fully repaid and the lien is released.
You cannot release a portion of the pledged units mid-loan. The lien is lifted only when the entire loan balance is cleared and the account is closed.
7Risks of LAMF
Margin calls
The primary risk in LAMF is NAV volatility, particularly for equity-backed loans. The credit limit is linked to the current market value of pledged units. If the NAV falls significantly, the outstanding loan may exceed the permitted LTV threshold - triggering a margin call.
When a margin call is issued, the borrower must either pledge additional units or repay part of the outstanding loan within the lender's stipulated grace period (typically 7 days). Failure to act allows the lender to redeem a portion of the pledged units to recover the outstanding amount.
Rs 10 lakh in equity funds pledged at 70% LTV, with Rs 5 lakh withdrawn. If NAV falls 25%, fund value drops to Rs 7.5 lakh. The outstanding loan of Rs 5 lakh now represents 66.7% of current value — breaching the LTV threshold. A margin call is issued.
- Maintain withdrawals at 60–65% of the credit limit to preserve a buffer
- Keep a portion of the portfolio unpledged for use as additional collateral if needed
- Diversify pledged holdings across equity and debt funds — debt funds carry significantly lower margin call risk
- Monitor NAV regularly and set up alerts through the SLiQ platform
Interest accumulation
LAMF does not require mandatory principal EMIs - only monthly interest is billed. Without a repayment plan, the principal can remain outstanding for extended periods, increasing total interest cost. Borrowers are advised to plan principal repayments proactively.
Locked collateral
Pledged units cannot be redeemed during the loan period, even in a new emergency. Maintaining an unpledged reserve is recommended.
8Managing and Closing the Loan
- Partial or full repayments can be made at any time — zero prepayment or foreclosure charges
- Each repayment immediately restores the available credit limit; no reapplication is needed to redraw
- The loan can be closed at any time by repaying all outstanding dues; the lien is released immediately upon closure
- Top-up facility: Borrowers can increase their credit limit by pledging additional mutual funds or shares (LAS), without opening a new loan account.
Frequently Asked Questions
No. SLiQ does not conduct a hard CIBIL inquiry at any stage of the application.
Yes. NAV appreciation and dividends continue normally. The lien restricts redemption only — it has no effect on investment performance.
Late payment charges apply as per the loan agreement. Prolonged non-payment may result in the lender liquidating pledged units to recover outstanding dues.
Yes, once the corresponding portion of the loan is repaid and the outstanding balance reduces accordingly, SLiQ allows you to partially unpledge the fund.
Yes, joint folios are eligible on SLiQ. However, the process is slightly different from individual folios. Please check with SLiQ's support team at sliqfin.com or on WhatsApp for guidance on the exact steps.
Yes, demat-held mutual fund units are eligible on SLiQ. However, the process differs from standard non-demat (Statement of Account) folios processed through CAMS and KFintech. Please check with SLiQ's support team at sliqfin.com or on WhatsApp to understand the process for your specific holdings.
SLiQ works with multiple RBI-regulated lenders like Tata Capital, Bajaj Finance, Jio Financial Services, ICICI Bank, Aditya Birla Capital and Geojit
The loan is structured as an overdraft facility with a tenure of up to 36 months, subject to lender terms. It is renewable based on repayment track record and current portfolio value. There are no prepayment penalties - the outstanding balance can be repaid anytime, in part or in full, without any additional charges
No physical documents are required. The process is entirely digital – PAN for portfolio scanning, Aadhaar-linked OTP for KYC verification, and bank account details for disbursal.
Loan approval is completed in under 6 hours. The application itself from eligibility check to signing the agreement can be done in under 10 minutes.
If a significant fall in NAV causes the outstanding loan to exceed the permitted LTV ratio, SLiQ will notify you to take corrective action within 3 days. You can either pledge additional units to restore the ratio or repay part of the outstanding loan. If no action is taken within the stipulated period, the lender may redeem a portion of the pledged units to recover the outstanding amount.
Interest rates on SLiQ start at 9.99% p.a. and are charged only on the amount withdrawn, not on the full credit limit. Rates may vary depending on the lender, fund type, and portfolio profile. All applicable rates and charges are disclosed upfront before signing the loan agreement
Disclaimer: Interest rates, LTV ratios, and eligibility criteria are indicative and may vary by lender and fund type. Tax rates are as per current Indian income tax rules and subject to change. This article is for informational purposes only and does not constitute financial or investment advice. Please consult a qualified financial advisor before making borrowing decisions.
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