A quick guide to a loan against MF for first-time investors

A loan against MF allows investors to borrow funds by placing a lien on eligible mutual fund units instead of redeeming them. The lender assesses the selected schemes, applies the relevant loan-to-value ratio, and provides a borrowing limit based on their current market value.

For a first-time borrower, a loan against MF can support temporary financial requirements while keeping investments in the portfolio. However, the units remain exposed to market movements, and their value can affect the available borrowing limit throughout the loan tenure.

What does borrowing against mutual funds mean?

Borrowing against mutual funds means offering selected units as collateral for a secured credit facility. The investor retains ownership, but the lender marks a lien on the pledged units.

Lien-marked units generally cannot be redeemed, switched, transferred, or pledged elsewhere until the lender releases them. The investments continue participating in market movements, so their value may rise or fall during the borrowing period.

Unlike redemption, lien marking retains the units but creates interest costs and repayment obligations.

Which mutual funds may qualify?

Lenders maintain approved lists of mutual fund schemes based on liquidity, valuation, volatility, and internal risk policies. Owning mutual funds does not automatically make every scheme eligible.

Selected equity, debt, hybrid, liquid, and overnight funds may qualify. Sectoral, thematic, international, small-cap, and locked-in schemes may face restrictions.

Eligibility can also depend on the asset management company, registrar support, folio ownership, and available units. Check the current approved list before applying.

How is the loan amount calculated?

The loan-to-value ratio, commonly called LTV, determines the percentage of the pledged portfolio value available for borrowing. Equity funds usually receive a lower LTV than debt funds because their market values can fluctuate more sharply.

With Bajaj Finance, eligible equity mutual funds may provide an LTV up to 50%, while eligible debt mutual funds may provide up to 90%. The actual limit depends on the schemes selected, number of units, prevailing NAV, and applicable lender assessment.

For example, eligible equity units worth Rs. 4,00,000 with 50% LTV may support up to Rs. 2,00,000. Final approval may be lower.

What documents are generally required?

Bajaj Finance asks individual applicants to keep three key documents ready:

• PAN card
• KYC document, such as Aadhaar, passport, or voter identity card
• Consolidated Account Statement or fund holding statement

Registered mobile, email, date of birth, and bank details may also be required. Matching registrar records helps prevent portfolio retrieval and lien-confirmation delays.

How does the application process work?

The digital process generally follows these steps:

1. Choose a lender offering loans against eligible mutual fund units.
2. Enter the required personal, PAN, mobile, and investment information.
3. Complete OTP verification using the registered mobile number.
4. Allow the platform to retrieve mutual fund holdings through supported registrars.
5. Review the displayed portfolio and identify eligible schemes.
6. Select the schemes and units that will be lien-marked.
7. Review the available limit, interest rate, charges, and repayment terms.
8. Authorise lien marking through the prescribed digital process.
9. Complete KYC and provide the bank details required for disbursal.

Funds are transferred after successful verification, approval, and lien confirmation.

What costs should first-time borrowers check?

Bajaj Finance currently states interest rates from 7% to 12.25% p.a. and processing fees up to 4.72% of the loan amount, including taxes.

Interest applies only to the withdrawn amount under an assigned credit limit. Also examine penal charges, renewal terms, stamp duty, prepayment conditions, and foreclosure charges.

Calculate the total expense for the intended borrowing period before accepting the facility.

What risks should first-time investors understand?

The main risk is a fall in the net asset value of pledged funds. When collateral value declines, the outstanding amount may exceed the permitted LTV. The lender can then issue a margin call or shortfall notice.

The borrower may need additional eligible units or partial repayment. Failure to restore cover can allow the lender to liquidate pledged units under the agreement.

Other risks include accumulating interest, restricted access, eligibility changes, and delayed-payment charges. An LTV buffer can absorb some market movement but cannot eliminate risk.

When can this facility be useful?

Borrowing against mutual funds may suit defined, temporary needs supported by a dependable repayment source. Examples include medical costs, education fees, business cash-flow gaps, urgent repairs, or another time-sensitive payment.

It may be unsuitable when repayment is uncertain or pledged units support an approaching goal. Avoid withdrawing the maximum limit merely because it is available.

What should borrowers do before applying?

Understanding how to get a loan against mutual funds begins with checking scheme eligibility, available LTV, total costs, and repayment capacity. Investors should compare borrowing with partial redemption and other suitable funding choices before creating a lien.

Maintain unpledged emergency assets, monitor NAV and drawing power, and respond promptly to lenders. After repayment, confirm lien release and retain the no-dues record.

Conclusion

A mutual fund-backed loan can provide liquidity without requiring an immediate redemption. Its usefulness depends on eligible schemes, manageable borrowing, transparent costs, adequate collateral cover, and disciplined repayment. Remaining invested preserves market exposure but does not guarantee returns.

Anyone researching how to get a loan against mutual funds should review the approved scheme list, sanction terms, interest calculation, and shortfall procedure carefully. Borrowing below the maximum limit and tracking the pledged portfolio regularly can help first-time investors manage the facility responsibly.