In today’s fast-paced financial landscape, flexibility is everything. As an Indian financial advisor who has worked with countless professionals across industries, I often come across a recurring concern: “How do I manage short-term liquidity without compromising my long-term wealth creation?” This question is especially relevant for professionals in their 30s and 40s—juggling EMIs, education expenses, ageing parents, and investment goals.
Fortunately, one option stands out as both practical and underutilized: borrowing against your mutual fund investments. Rather than redeeming your portfolio during an unplanned financial crunch—which could affect your long-term compounding—you can pledge your existing mutual fund units and access a cost-effective loan. But what determines whether this option makes sense for you is the interest rate—and that’s what we’re diving into today.
Why Consider a Loan Against Mutual Funds?
The most attractive part of this facility is that you don’t have to sell your units. Your investments continue to remain intact, meaning your long-term objectives—be it retirement, a child’s education, or buying a second home—stay on course.
This option is particularly useful if:
● You’re expecting a future cash inflow (bonus, insurance payout, maturity of another investment).
● You want to avoid personal loans with high interest rates (often ranging from 13% to 18%).
● You need liquidity urgently and don’t want to deal with cumbersome loan approvals.
So, What About Interest Rates?
Here’s where the conversation gets interesting. A loan against mutual funds is a secured loan, meaning the lender has collateral—your mutual fund units. Because of this security, interest rates tend to be significantly lower than unsecured options.
Currently, as of June 2025:
● State Bank of India offers loans against mutual funds at an interest rate of 11.50% per annum.
● Several NBFCs and fintech lenders offer even more competitive options, starting from 9.38% per annum, depending on the type and value of your portfolio.
This makes it a cost-effective borrowing solution, especially if you compare it with personal loans or credit card debt, which can attract interest rates north of 15–24%. You can use an online calculator or consult your lender to check your loan against mutual funds interest rate based on your scheme type (equity vs debt), portfolio value, and tenure.
How Much Can You Borrow?
The loan amount typically depends on the value of your pledged mutual fund units and the loan-to-value (LTV) ratio:
● Up to 50% of the current value for equity mutual funds.
● Up to 70% for debt mutual funds.
So, if your MF portfolio is worth ₹10 lakhs, you could get ₹5–7 lakhs as an overdraft or term loan.
Processing Is Simpler Than You Think
Digital advancements have made the borrowing process far more efficient:
● Authentication happens via PAN and mobile OTP.
● Lien marking (temporarily restricting the sale of pledged units) is done through platforms like CAMS or KFinTech.
● Funds are often disbursed on the same day.
In most cases, there’s no need for income proof or cumbersome paperwork.
Key Advantages
● Interest only on utilization: In an overdraft facility, you pay interest only on the amount withdrawn—not on the entire sanctioned limit.
● No impact on fund ownership: Your portfolio remains intact, and any appreciation in NAV continues to benefit you.
● Flexible repayment: You can repay anytime or even partially without heavy penalties.
Real-Life Example
Take the case of Arjun, a 37-year-old IT consultant in Pune. He needed ₹4 lakhs urgently for a business expansion but didn’t want to break his SIP-built mutual fund corpus of ₹12 lakhs. He approached his NBFC, pledged ₹8 lakhs worth of equity funds, and was approved for a line of credit of ₹4 lakhs at a rate of 9.38% per annum. He drew ₹3 lakhs initially and repaid the entire amount within five months—paying interest only on the amount used, for the time used.
Had he opted for a personal loan, the EMI burden and total cost would have been significantly higher.
Things to Keep in Mind
● Market Risk: If the NAV of your pledged units drops substantially, the lender may ask for a top-up or partial repayment.
● Loan Tenure: Most loans are offered for up to 12 months and are renewable.
If you’re a working professional who has diligently built a mutual fund portfolio over time, it’s only fair that it supports you when you need it. Tapping into your mutual fund portfolio at a competitive loan against mutual funds interest rate offers a cost-effective and financially prudent way to meet urgent needs without compromising your long-term investment goals.
It’s time we look at our mutual fund portfolio not just as a wealth-building tool, but also as a flexible financial ally—ready to back us when life throws the unexpected.
