Mutual Funds loan-against-mfs

Loan against mutual funds (LAMF)

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Loan against mutual funds (LAMF) is a credit product offered by banks, NBFCs, and broker-lenders that provides a loan against pledged mutual fund units as collateral. The product enables liquidity access without redeeming the underlying MF holdings, preserving long-term investment positions and avoiding capital-gains tax on premature redemption.

Product structure

Loan amount

  • Based on LTV applied to pledged unit value.
  • Typical limit: Rs 50,000 to Rs 5 crore per borrower.

Tenure

  • Revolving credit lines: continuous availability.
  • Term loans: 1 to 5 years.

Interest

  • Typical rate: 9 to 14% per annum.
  • Lower than personal loans (~12 to 18%).
  • Higher than home loans (~8 to 10%).

Lender types

  • Banks: HDFC, ICICI, Kotak, Axis offer LAMF products.
  • NBFCs: Bajaj, Tata Capital.
  • Broker-lenders: Some integrated through demat / pledge infrastructure.

Process

  1. Investor selects units to pledge.
  2. Units pledged in demat account.
  3. Lender disburses loan based on LTV.
  4. Investor pays interest and principal per terms.
  5. On full repayment, pledge released.

Vs alternatives

ProductLTV / LimitInterestTenure
LAMF50-95% of MF value9-14%Flexible
Personal loanIncome-multiple12-18%1-7 years
Home loan80-90% property8-10%Up to 30 years
Gold loan75% gold value8-12%1-3 years
Credit cardLimit-based24-42%Revolving

LAMF sits in the secured-credit middle ground, competitive with gold loans and below personal loans on cost.

Tax implications

  • Loan itself is not income; no tax.
  • Interest paid: generally not deductible (unlike home-loan interest under Section 24).
  • No tax on pledge itself.
  • Future redemption follows normal MF tax rules.

See also

External references

References

  1. SEBI (Mutual Funds) Regulations 1996.
  2. AMFI Best Practice Guidelines.

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