Why Loan Against Mutual Funds is Better Than Personal Loans
A Loan Against Mutual Funds (LAMF) is a secured credit facility where you pledge your equity or debt mutual fund units as collateral to obtain immediate liquidity. It provides fast access to funds without requiring you to redeem your investments and trigger capital gains tax.
By keeping your mutual fund units intact, your portfolio continues to compound in the market—you can model your ongoing portfolio growth on our mutual fund returns calculator and SIP calculator. LAMF interest rates are usually 9% to 11%, significantly lower than unsecured borrowings—compare borrowing costs on our personal loan calculator and verify your reducing interest rate with our flat vs reducing rate calculator. Remember to maintain a liquid cushion on our emergency fund calculator and check overall debt leverage using our debt-to-income calculator.
| Feature | Loan Against Mutual Funds (LAMF) | Personal Loan |
|---|---|---|
| Interest Rate Range | 9.5% - 11.5% p.a. | 13.0% - 21.0% p.a. |
| Interest Charged On | Utilized Amount Only | Total Sanctioned Principal |
| Investment Growth | Continues Compounding (NAV) | N/A (Liquidated Capital) |
Key Advantages of Loan Against Mutual Funds (LAMF)
- Avoid Compulsory Equity Liquidation: Raise emergency cash without redeeming your mutual fund units, preserving long-term SIP compounding and avoiding capital gains tax.
- Low Interest Rates (9-10.5%): Significantly cheaper than personal loans (13-18%) or credit cards (36-42%) because loan is backed by pledged liquid assets.
LTV Limits (Equity vs Debt Funds)
- Equity Mutual Funds LTV: RBI allows up to 50% Loan-to-Value (LTV) on equity mutual fund holdings.
- Debt Mutual Funds LTV: Banks offer up to 80-85% LTV on debt funds due to lower asset volatility.
LAMF Overdraft Smart Hack
Set up a digital LAMF overdraft line. You pay interest ONLY on the exact amount withdrawn for the exact number of days used, with zero prepayment penalty!