Loan Against Mutual Funds Calculator 2026
Get instant liquidity without selling your mutual fund investments.
Calculate EMI with 50-60% LTV ratio
Ten Lakhs rupees
Loan Amount: ₹5.00 L
You can borrow 50% of your portfolio value
Monthly EMI
₹44.07 K
Loan Composition
0.06x
You'll pay 0.06 times the principal as interest
Loan Against Mutual Fund Calculation Formulas
Formulas for calculating loan against mutual fund units and understanding the mechanism.
Loan Amount = NAV × Units × Loan-to-Value RatioExample:
1000 units at ₹150 NAV with 60% LTV ratio
Variables:
Interest = Loan Amount × Annual Rate × TimeExample:
₹90,000 loan at 12% annual rate for 1 year
Variables:
These formulas provide the mathematical foundation for the calculations. Actual results may vary based on rounding, compounding frequency, and specific lender policies.
Understanding Loan-to-Value (LTV) Ratio for Mutual Funds
What is LTV Ratio?
LTV (Loan-to-Value) ratio is the percentage of your mutual fund portfolio's current Net Asset Value (NAV) that you can borrow as a loan. It's lower than gold loans due to market volatility of mutual funds.
For example, if your portfolio is valued at ₹10,00,000 and the LTV ratio is 50%, you can get a maximum loan of ₹5,00,000.
LTV Ratio by Fund Type
Higher volatility, lower LTV
More stable, slightly higher LTV
Most stable, highest LTV
Can I Pay Only Interest on Loan Against Mutual Funds and Repay Principal at the End?
Yes, absolutely! One of the most attractive features of Loan Against Mutual Funds (LAMF) is the flexibility to pay only the interest component during the loan tenure and repay the entire principal amount at maturity. This unique repayment structure makes it significantly different from traditional personal loans or home loans where you're required to pay both principal and interest through Equated Monthly Installments (EMIs).
This interest-only payment option is particularly beneficial for investors who need short-term liquidity but want to minimize their monthly cash outflow while keeping their mutual fund investments active and compounding. Understanding how this works, when to use it, and its implications can help you make an informed decision about structuring your loan repayment.
How Interest-Only Payment Works
When you opt for an interest-only repayment structure, you pay only the interest accrued on the outstanding loan amount each month or quarter, while the principal amount remains unchanged throughout the loan tenure. At the end of the loan period, you repay the entire principal in one lump sum payment.
Monthly/Quarterly Interest Payment
You pay only the interest amount calculated on the principal. For example, on a ₹5 lakh loan at 12% annual interest, you'd pay approximately ₹5,000 per month as interest.
Principal Remains Constant
Unlike traditional EMIs where each payment reduces the principal, your loan amount stays at ₹5 lakh throughout the tenure.
Bullet Payment at Maturity
At the end of the loan tenure (say 12 months), you repay the entire ₹5 lakh principal in one payment, after which your mutual fund units are released from lien.
Repayment Structure Options Available
Most lenders offering Loan Against Mutual Funds provide multiple repayment options to suit different financial situations:
Interest-Only EMI
Pay only interest monthly/quarterly. Principal due at end.
Best For:
Short-term needs, expecting lump sum income
Regular EMI
Pay principal + interest in fixed monthly installments.
Best For:
Regular income earners wanting structured repayment
Overdraft Facility
Withdraw as needed, pay interest only on amount used.
Best For:
Uncertain cash flow needs, maximum flexibility
Key Benefits of Interest-Only Payment Structure
Lower Monthly Outflow
Significantly reduces monthly payments. For a ₹10 lakh loan at 12% for 12 months, interest-only payment is ~₹10,000/month vs. regular EMI of ~₹88,849/month. This frees up cash for other uses or investments.
Investments Keep Compounding
Your mutual fund units continue to grow. Since you're not forced to sell units for principal repayment, your investments benefit from market appreciation and compounding throughout the loan period.
Better Cash Flow Management
Ideal for irregular income patterns. Business owners, freelancers, or those expecting bonuses can manage low monthly payments and clear principal when they receive lump sum income.
Flexibility to Prepay Anytime
No prepayment penalty in most cases. You can repay the principal partially or fully whenever you have surplus funds, without waiting for loan maturity.
Potential for Higher Returns
Benefit from bull markets. If your mutual funds generate returns higher than the loan interest rate (say 15% returns vs 12% interest), you're earning net positive returns while using borrowed money.
Short-Term Solution
Perfect for 3-12 month needs. Avoid disrupting long-term investment strategy for temporary cash requirements. Keep investments intact for your financial goals.
Important Considerations and Risks
While interest-only payments offer flexibility, there are important risks and drawbacks to consider:
Higher Total Interest Cost
You pay interest on the full principal amount throughout the loan tenure. In regular EMIs, interest reduces as principal decreases. For a ₹5 lakh loan at 12% for 12 months: Interest-only = ₹60,000 total interest vs Regular EMI = ~₹33,000 total interest.
Large Bullet Payment Risk
You must arrange for a lump sum amount at maturity. If you can't pay, the lender may liquidate your pledged mutual fund units at prevailing market rates, which could be lower than expected, resulting in losses.
Market Volatility Impact
If markets fall significantly, your mutual fund NAV decreases while loan principal remains the same. The lender may ask for additional collateral or reduce your loan limit. In extreme cases, forced liquidation may occur.
Discipline Required
Requires financial discipline. You must ensure funds are available at maturity. Temptation to spend instead of saving for principal repayment can lead to default and loss of investments.
No Principal Reduction
Your debt remains constant throughout tenure, unlike regular EMIs where debt decreases monthly. This can be psychologically taxing and impacts your credit utilization ratio.
When Should You Choose Interest-Only Payment?
Choose This Option If:
- You're expecting a lump sum (bonus, maturity proceeds, sale of asset) within 3-12 months
- Your mutual funds are in a strong upward trend and likely to give returns higher than interest cost
- You need to preserve monthly cash flow for business operations or other critical expenses
- You have irregular income (commission-based, seasonal business) but confident of year-end income
- Short-term emergency that will resolve soon (medical expense, temporary business need)
- You want to avoid capital gains tax by not selling mutual fund units
- Your investment horizon is long-term and you don't want to disrupt compounding
Avoid This Option If:
- You have no clear plan for principal repayment at maturity
- Your income is stable and regular (salaried), making regular EMIs more suitable
- You need a loan for long-term purpose (over 18 months)
- Your mutual funds are underperforming or in bearish market conditions
- You lack financial discipline to save for bullet payment
- You're already heavily leveraged with other debts
- Market outlook is uncertain and portfolio value may decline significantly
Practical Example: Interest-Only vs Regular EMI
Loan Details: ₹10,00,000 at 12% p.a. for 12 months
Option 1: Interest-Only Payment
Option 2: Regular EMI
Key Insight: Interest-only payment saves ~₹78,849 per month in cash outflow but costs ₹53,812 more in total interest. Choose based on whether you value monthly liquidity or total cost savings.
Tax Implications of Interest-Only Loans
Understanding the tax treatment of interest payments and mutual fund holdings during the loan period:
Interest Paid - Not Tax Deductible (Generally)
Interest paid on loan against mutual funds is NOT eligible for tax deduction under Section 80C or any other section for personal use. However, if you use the loan for business purposes, interest may be claimed as business expense (consult CA).
No Capital Gains Tax During Loan Period
Since you're not selling mutual fund units, there's no capital gains tax liability during the loan tenure. This is a major advantage over premature redemption, which would trigger STCG/LTCG tax.
Mutual Fund Returns Continue to Compound Tax-Free
Your pledged units continue earning returns, and these gains are not taxed until redemption. This allows tax-free compounding, which is especially beneficial for equity mutual funds held for long-term goals.
Holding Period Continues During Loan
The holding period for LTCG/STCG calculation continues to run even when units are pledged. If you hold equity funds for over 1 year, you benefit from lower LTCG tax rates when you eventually redeem.
Final Recommendation
Interest-only payment on loan against mutual funds is a powerful tool when used correctly. It's ideal for short-term liquidity needs (3-12 months) when you have a clear repayment plan and your mutual fund investments are performing well.
However, it requires financial discipline and a concrete plan to arrange the bullet payment at maturity. If you have regular income and no specific reason to preserve monthly cash flow, regular EMI may be more suitable as it results in lower total interest cost and forces systematic debt reduction.
Always compare the total cost of borrowing (interest + fees) across both options and choose based on your cash flow situation, investment outlook, and financial goals. When in doubt, consult a financial advisor to structure your loan optimally.
Loan Against Mutual Funds Benefits
Get instant liquidity while keeping your investments active
Who Should Use This?
Loan Against Mutual Funds is ideal for:
- Investors needing short-term liquidity (3-12 months)
- Those who don't want to exit investments prematurely
- People looking to avoid capital gains tax on redemption
- Emergency fund requirements without selling assets
- Individuals with strong mutual fund portfolio
- Those seeking lower interest than personal loans (8-14%)
- Business owners needing working capital temporarily
- Salaried professionals facing temporary cash crunch
Who Should Avoid This?
This loan may not be suitable if you:
- Need funds for long-term use (over 2 years)
- Have irregular income and uncertain repayment capability
- Your mutual funds are underperforming or in significant loss
- Need more than 60% of your portfolio value
- Planning to use it for speculative investments
- Can liquidate poor-performing funds without major tax impact
- Have access to cheaper financing (like home equity loan)
- Don't have sufficient mutual fund units
No Investment Disruption
Your mutual funds continue to earn market returns while being pledged as collateral.
Lower Interest Rates
Interest rates typically 8-14% p.a., much lower than personal loans (12-24%).
Quick Disbursal
Get funds within 24-48 hours. Completely digital process with minimal documentation.
Tax Efficient
Avoid capital gains tax that would apply if you sold mutual funds prematurely.
Flexible Repayment
Repay anytime without prepayment charges. Option for interest-only EMI.
Portfolio Remains Active
Units are pledged, not sold. You benefit from market appreciation during loan period.
Tax Implications of Loan Against Mutual Funds
No Immediate Tax Liability
Taking a loan against mutual funds is NOT a taxable event. You don't incur any capital gains tax as units are pledged, not sold.
Interest Expense Not Deductible
Interest paid on mutual fund loans is generally NOT tax-deductible, unless the loan is used for business purposes and you can prove business use.
Units Continue Earning Returns
Your pledged units continue to earn returns and compound. Tax on capital gains applies only when you redeem units after loan closure, based on holding period (LTCG/STCG rules apply).
Tax Efficiency vs Selling
More tax-efficient than selling mutual funds prematurely. If you sell equity funds before 1 year, you pay STCG @ 20%. By taking loan, you avoid this and keep compounding benefits.
Pro Tip: For tax planning, consult a tax advisor. Tax rules may vary based on usage of loan proceeds and your tax slab.
Withdrawal Terms & Conditions
During Loan Period
- Pledged units cannot be redeemed or sold
- Cannot switch to other mutual fund schemes
- Units remain in lien with the lender
- SIPs in pledged schemes may need to be paused
Partial Release Options
- Make partial repayment to release some units
- Minimum amount applies for partial release (typically ₹50,000)
- Processing time: 2-3 business days
- Small processing fee may apply (₹100-500)
Loan Renewal & Extension
- Can renew loan by paying accrued interest
- Maximum loan tenure usually 12-36 months
- Renewal subject to portfolio value review
- Renewal charges may apply
Full Repayment & Closure
- No prepayment penalty in most cases
- Units released within 2-3 business days
- Can close loan anytime after 1 month
- Interest calculated till closure date
Important: If loan defaults, lender can liquidate pledged units to recover dues. Maintain adequate funds for timely EMI payment to avoid liquidation.
Demise, Succession & Nomination
What Happens After Demise?
- Loan becomes part of deceased's estate
- Legal heirs responsible for outstanding amount
- Lender may freeze the pledged units
- Units can be liquidated to recover loan if unpaid
- Heirs can repay loan to reclaim units
Importance of Nomination
- Quick claim settlement process
- Nominee gets immediate access to handle loan
- Prevents family disputes over assets
- Reduces documentation burden
- Avoids lengthy legal processes
Loan Insurance Coverage
Some lenders offer optional loan insurance that covers outstanding amount in case of borrower's death:
Best Practice: Always provide nomination details during loan application. Update nominee information if life circumstances change. Consider loan insurance for peace of mind.
How to Apply for Loan Against Mutual Funds
Important: Where to Apply
You cannot get a loan directly from RTAs (CAMS or KFintech). RTAs only maintain records of your mutual fund investments and facilitate the lien marking process. You must approach a Bank or NBFC that offers loans against mutual funds.
Choose a Lender & Apply
Research banks (SBI, HDFC, ICICI) and NBFCs offering LAMF. Compare interest rates, LTV ratios, and terms. Apply via their website/app with your PAN, Aadhaar, and bank details
Select Funds to Pledge
Choose which mutual fund units to pledge as collateral from the lender's approved scheme list. Note: ELSS and funds with lock-in periods are not eligible
Lien Marking by RTA
Lender sends request to RTA (CAMS/KFintech) to mark lien on your units. You authorize via OTP. Once marked, you can't sell units but continue to own them and receive dividends
Sanction & Disbursement
After successful lien marking, bank/NBFC approves loan and disburses funds to your account. Often provided as overdraft facility - pay interest only on amount used
Repayment & Lien Removal
Upon full repayment, lender notifies RTA to remove lien. Units are released back with full access. In case of default, lender can liquidate pledged units to recover dues
Track Online
Monitor loan status, EMI payments, and lien status through lender's website/app. Digital process allows you to track everything without branch visits
Banks/NBFCs (Lenders)
Provide the actual loan amount. Examples: SBI, HDFC Bank, ICICI Bank, Bajaj Finserv, IIFL Finance
RTAs (Facilitators)
Maintain MF records and mark lien on units. CAMS, KFintech (formerly Karvy). They DON'T lend money
You (Borrower)
Own mutual fund units, apply for loan, authorize lien marking, and repay to get units released
Digital Process Benefits
- 100% paperless application process
- No branch visit required for most lenders
- Instant portfolio valuation and LTV calculation
- Quick disbursal within 24-48 hours post lien marking
- OTP-based authorization for lien marking - secure and instant
- Track application status and lien status online
- Overdraft facility available - pay interest only on amount used
Documents Required
Mandatory Documents
PAN Card
Mandatory for all loan applications
Aadhaar Card / Voter ID / Passport
For identity verification
Mutual Fund Portfolio Statement
Latest statement showing holdings
Bank Account Statement
Last 3-6 months for repayment capacity
Address Proof
Utility bill, rent agreement, etc.
Passport Size Photographs
2-3 recent photographs
Additional Documents (if required)
Income Proof
Salary slips, ITR for loans above ₹5 lakh
Employment Proof
Appointment letter, business registration
Demat Account Statement
If units held in demat form
ITR Returns
Last 2 years for self-employed
Form 16
For salaried individuals
Business Proof
GST registration, business license
Note: Document requirements may vary by lender and loan amount. Digital/scanned copies are accepted for online applications. Original verification may be done later.
Eligibility Criteria
Age Requirement
- Minimum age: 21 years
- Maximum age: 65 years
- Some lenders allow up to 70 years
Residential Status
- Must be Indian resident
- NRIs generally not eligible
- Proof of residence required
Mutual Fund Holdings
- Must own mutual fund units
- Units should be in your name
- Minimum portfolio value: ₹1 lakh
KYC Compliance
- Valid KYC with mutual fund AMC
- PAN card is mandatory
- Updated contact details required
Income Requirement
- No minimum income for small loans
- Income proof for loans above ₹5 lakh
- Regular income source preferred
Employment Type
- Salaried employees eligible
- Self-employed eligible
- Business owners eligible
- Housewives with MF holdings eligible
- Retired persons eligible
Good News: Eligibility for mutual fund loans is quite relaxed compared to unsecured loans. Even homemakers and retired persons can get loans if they own mutual fund units.