Not Just Mutual Fund Investments, Loans Against MF Too Are On The Rise

Amidst a rise in mutual fund investments, investors are increasingly taking loans against mutual funds to avoid having to liquidate their investments to meet short-term requirements.

Loan against mutual funds, especially digital loans, is a young, high-growth segment, said Krishna Kanhaiya, CEO at Mirae Asset Financial Services. "While there’s no formal public data for LAMF alone, internal and industry indicators tell us that in FY25, the number of individuals digitally pledging mutual funds for loans doubled over FY24, and the year before, the growth was even sharper, given the smaller base," he said.

Similar to loans against collateral, you can also take a loan against mutual funds instead of redeeming them for short term liquidity. The standard loan-to-value ratio is usually 50%. While loan against mutual funds is not new, its popularity has increased significantly in the last couple of years. This growth is driven by increased mutual fund penetration, a rise in digital lending platforms, and higher awareness among investors about smarter ways to access credit.

Earlier this year, Cred too launched Cred Cash+ that enables mutual fund-holders to borrow with a fully digital experience, with no minimum AUM requirement and interest rates starting at 8.99%. Akshay Aedula, who oversees product and growth at Cred, said that the product is seeing strong interest from members, enabling affluent consumers to gain short-term liquidity without compromising the compounding of their portfolios. Earlier, this need was often met through higher-interest unsecured loans, or by redeeming investments prematurely, he said.

The potential here is huge, said Kanhaiya. India’s mutual fund industry has crossed Rs 50 lakh crore in assets under management, but only a fraction of that is currently leveraged for borrowing, he said. As more investors discover they can unlock liquidity without selling their investments—protecting their long-term goals while meeting short-term needs—we expect this segment to sustain high double-digit growth rates for the foreseeable future, he added.

Even though it’s a retail loan aimed at individuals, the average ticket size is around Rs 7 lakh, which is significantly higher than typical personal loans, he said, adding that utilisation trends are in line with industry standards for limit-based loans, with borrowers using about 55% of their sanctioned amount on average.

The average tenure stands at just over 11 months, as borrowers have the flexibility to foreclose the loan anytime without any charges. This results in a shorter loan life compared to fixed-term loans. Insights from customer surveys reveal that more than a quarter of these loans are taken for one-time purposes—covering large expenses such as weddings, medical emergencies, or school and college fees, Kanhaiya said.

Repayment behaviour has been exceptionally strong, with nearly 99% of loans being serviced on time, he said, adding that users of this product are largely from tier 1 and tier 2 cities, typically in the 30–50 age range. This aligns closely with AMFI data on mutual fund investors, as people from these cities tend to have higher disposable incomes and invest for long-term life goals.

From a working profile perspective, nearly half of our customers are salaried individuals, Kanhaiya said. Professionals account for about 20%, and self-employed individuals make up roughly 18%.

The funds pledged mirror overall mutual fund investment trends, with the largest contributions coming from leading AMCs such as ICICI Prudential Mutual Fund, HDFC Mutual Fund, and others.

Most borrowers belong to the 30 to 50-year-old age group—digitally savvy salaried professionals, entrepreneurs, or investors. These users typically have a significant portfolio and are financially aware. Rather than liquidating their mutual funds, which may have been earmarked for long-term goals such as retirement or children’s education, they prefer to use those investments as a source of liquidity.

"We continue to see strong interest in LAMF and are now expanding this facility to our customers’ stocks and ETF holdings as well," said Vasanth Kamath, CEO, Smallcase, where interest rate on the product is at about 10.5% per annum. "Our foray into secured credit was driven by feedback from our users—today’s retail investors increasingly understand the value of staying invested for the long term," he said.

As financialisation of savings deepens in India and individuals’ investments patterns move towards financial and equity assets, loans against securities are likely to become an essential part of every investor’s toolkit to manage their personal finances, Kamath said.

The loan against securities market in India—which covers loans against shares, bonds, debentures, and mutual funds has shown consistent growth over the last few years. As of FY25, the market is valued at about Rs 37,350 crore, growing at a healthy CAGR of 11.4% from FY20 to FY25, according to data from Crisil. FY25 saw a growth of 27.5%.

NBFCs have been the growth engine. In FY25, they expanded their LAS book by nearly 37%, outpacing PSU and private banks. Today, NBFCs hold roughly 72% of the total outstanding LAS portfolio, reflecting the trust customers place in their speed, flexibility, and service models.

To be sure, since securities are market-linked, their value can fluctuate. This means the loan account is subject to revaluation based on the prevailing NAV of the pledged units. The eligible limit of the loan changes with a change in the value of the pledged mutual funds.

If the NAV drops significantly, where the utilised amount is more than the eligible limit, it triggers a margin call, where the borrower may need to either pledge more units or repay a part of the loan to maintain the minimum margin.