If you need cash fast and don't want to sell your investments, you have more than one option. You can borrow against a Fixed Deposit, against your mutual funds, or against shares you hold. All three let you keep your investment and still get money in hand — but they're not equally cheap, equally safe, or equally fast.
Here's a clear, side-by-side look at how they actually compare, so you can pick the right one instead of guessing.
The Quick Answer
- Cheapest and safest: Loan against FD — but only if you already have a Fixed Deposit sitting idle
- Best balance of cost and flexibility: Loan against Mutual Funds (especially debt funds) — higher borrowing limits, decent rates, and you don't need an existing FD
- Highest borrowing power, but riskiest: Loan against Shares — direct equity is volatile, so lenders are stricter and margin calls hit faster
None of these are "free money." They're all still debt, secured by something you own, and each comes with its own risk if the value of your pledged asset falls.
Comparing the Three Options
| Factor | Loan Against FD | Loan Against Mutual Funds | Loan Against Shares |
|---|---|---|---|
| Typical LTV (how much of the asset's value you can borrow) | Up to 90–95% | ~45–50% for equity funds, up to 75–80% for debt funds | Around 50%, generally lower for volatile stocks |
| Typical interest rate | FD rate + 1–2% (often 8–9% p.a. if your FD earns ~7%) | Roughly 9.5–12.5% p.a., depending on the lender and fund type | Similar to or higher than LAMF, and more sensitive to stock volatility |
| Risk of forced sale (margin call) | Very low — FD value doesn't fluctuate | Moderate — NAV can fall, especially for equity funds | Higher — share prices can swing sharply in a single session |
| Speed of disbursal | Often same-day, sometimes instant via net banking | Usually within hours, fully digital | Usually within hours, fully digital |
| Best suited for | Anyone with an existing FD who wants the cheapest possible loan | Investors with mutual fund holdings who want a bigger loan without selling | Investors comfortable with market risk who hold direct equity |
These are general market ranges — actual rates and LTV always depend on the specific lender and product you choose.
Loan Against FD: The Cheapest Option, If You Qualify
A Fixed Deposit doesn't move in value, which makes it the safest possible collateral for a lender. That's why loans against FDs are usually the cheapest form of secured borrowing available to individuals.
How it works: The bank places a lien on your FD instead of breaking it. You get a loan or an overdraft, usually up to 90–95% of the FD's value, and you keep earning interest on the full FD amount throughout.
Why it's cheap: Since the collateral value is fixed and guaranteed, lenders typically charge only 1–2% above your FD's own interest rate. If your FD earns 7%, your loan might cost around 8–9% — often less than half the rate of an unsecured personal loan.
The catch: You need an existing FD to begin with. If you don't have one — or your FD is too small for the amount you need — this option simply isn't available to you.
Loan Against Mutual Funds: A Flexible Middle Ground
If you don't have an FD but do hold mutual funds, LAMF is usually the next-best option in terms of cost.
How it works: You pledge your mutual fund units (via a lien registered with CAMS or KFintech) instead of selling them. The lender sets an overdraft limit based on your fund's Net Asset Value (NAV) and the applicable Loan-to-Value ratio, and you pay interest only on what you actually withdraw.
LTV varies by fund type: Debt mutual funds generally get a higher LTV — commonly up to 75–80% — since they're less volatile. Equity mutual funds typically get a lower LTV, often in the 45–50% range, because their value can swing more with the market.
The risk to understand: If the NAV of your pledged funds falls sharply, your lender can issue a margin call, asking you to pledge more units or repay part of the loan quickly. We've covered exactly how this plays out, step by step, in Margin Call on Your Loan Against Mutual Funds: What Happens If Your NAV Falls — worth reading before you pledge equity-heavy funds specifically.
On MLE's own Loan Against Mutual Fund facility, LTV and starting rates depend on the partner lender matched to your profile — currently starting from around 9.5–9.75% p.a., depending on the partner. You can also read about how RBI's 2026 rule changes to LAMF LTV limits affect how much you can now borrow.
Loan Against Shares: More Borrowing Power, More Risk
Pledging direct equity shares works on the same basic principle as LAMF, but the risk profile is different because individual stocks can be far more volatile than a diversified mutual fund.
How it works: Your shares (held in demat form) are pledged to the lender, who sets a credit limit based on their current market value and an LTV ratio.
Why the LTV is usually lower: Because a single stock can drop sharply on any given day — on company-specific news, not just broader market moves — lenders build in a bigger safety margin. LTVs for shares are generally similar to or lower than equity mutual funds.
Margin calls happen faster here: A concentrated stock portfolio can lose value quickly, and lenders track this closely. If you're not actively watching your loan-to-value ratio, a sudden price drop can trigger a margin call with very little warning.
This option tends to suit investors who already actively track their stock portfolio and are comfortable reacting quickly if a margin call comes in.
How the Pledging Process Actually Works
The mechanics differ slightly across the three, but the broad flow is similar:
For a Loan Against FD:
- Apply through your bank's net banking, app, or branch
- The bank marks a lien on your existing FD — it isn't broken or closed
- Loan or overdraft limit is set as a percentage of your FD value
- Funds are disbursed, often within the same day
- Interest accrues only on the amount you withdraw (for overdraft-style facilities)
For Loan Against Mutual Funds:
- Apply digitally with the lender and complete KYC
- Select eligible mutual fund units (not all schemes qualify — ELSS/tax-saver funds are usually excluded)
- A lien is registered with CAMS or KFintech, the registrars that track mutual fund holdings
- The Asset Management Company (AMC) confirms the pledge
- Your overdraft limit is activated based on NAV and LTV, and you draw funds as needed
For Loan Against Shares:
- Apply with the lender and link your demat account
- Choose eligible shares — not every listed stock qualifies, and lenders maintain an approved list
- Shares are pledged (marked as collateral) rather than transferred out of your demat account
- A credit limit is set based on current market value and LTV
- The lender monitors the pledged value daily, since share prices move constantly
In all three cases, you retain ownership of the underlying asset throughout — you just can't sell or redeem it until the loan is repaid and the lien or pledge is released.
Does This Affect Your Taxes?
This is a common question, and the honest answer is: it depends, and it's worth checking with a tax advisor for your specific situation. As a general principle, taking a loan isn't a taxable event — you're borrowing money, not earning income, so the loan amount itself isn't taxed. Your FD interest, mutual fund gains, or dividend income from pledged shares continue to be taxed as usual, since you still legally own the underlying asset. What can matter is if the lender is ever forced to sell your pledged units or shares to recover a default — that sale could trigger capital gains, just as a voluntary redemption would. This is a genuine reason to avoid letting a loan reach the point of forced liquidation, beyond just the immediate financial stress of it.
A Worked Example: Borrowing ₹5 Lakh
To make the cost difference concrete, here's an illustrative comparison for someone who needs ₹5 lakh for six months. These are indicative rates for illustration only — your actual offer will depend on your specific lender, fund type, and profile.
| Option | Illustrative Rate | Approx. 6-Month Interest on ₹5 Lakh |
|---|---|---|
| Loan against FD (FD @ 7%, loan @ 8.5%) | 8.5% p.a. | ≈ ₹21,250 |
| Loan against Mutual Funds (debt fund) | 10.5% p.a. | ≈ ₹26,250 |
| Loan against Shares | 11.5% p.a. | ≈ ₹28,750 |
| Unsecured Personal Loan (for comparison) | 13% p.a. | ≈ ₹32,500 |
Even the more expensive of these three secured options is still meaningfully cheaper than an unsecured personal loan — which is exactly why lenders reward you for offering collateral, and why it's worth checking what you already own before taking on unsecured debt. Our Personal Loan Eligibility guide is useful if you're weighing that option too.
What to Check Before You Pledge Any Asset
- Know your real LTV — don't assume the maximum advertised rate applies to your specific fund or stock
- Understand the margin call trigger — ask the lender exactly how much of a value drop would require you to top up
- Check for prepayment charges — most LAMF and loan-against-securities products allow free prepayment, but confirm this upfront
- Only borrow what you can service — a secured loan is still a loan; missed payments can mean your pledged asset gets sold to recover the dues
- Watch tenure limits — these loans are usually shorter-term (12–36 months) than personal loans, so plan your repayment accordingly
Frequently Asked Questions
Which is the cheapest way to borrow against my investments? A loan against FD is usually the cheapest, since your FD's value doesn't fluctuate. Among market-linked options, loans against debt mutual funds tend to be cheaper than loans against equity funds or shares.
Can I lose my mutual funds or shares if I take a loan against them? Yes, if you default or fail to respond to a margin call after a significant value drop, the lender can sell the pledged units or shares to recover the outstanding loan.
Is a loan against mutual funds better than redeeming them? Often, yes — especially if you believe your investments will keep growing, or if redeeming would trigger a big tax bill or break a long-term compounding streak. But it does add interest cost and carries margin call risk, so it's not automatically the better choice in every situation.
Do I need a good CIBIL score for these secured loans? Since these loans are backed by collateral, lenders generally place less weight on your credit score than they would for an unsecured personal loan. That said, requirements vary by lender.
Can I combine a loan against mutual funds with other loans? Yes, but remember that any EMI or interest obligation still counts toward your overall debt burden. If you're also considering other borrowing, our guide on FOIR explains how lenders look at your total obligations together.
Choosing What's Right for You
If you have an idle FD, that's usually your cheapest starting point. If you don't, but you hold mutual funds — especially debt funds — a Loan Against Mutual Funds is often the better balance of cost, speed, and flexibility over pledging individual shares. Whatever you choose, run the real numbers before deciding: MLE's EMI Calculator can help you compare the actual cost across tenures, and our Loan Against Mutual Fund page shows current partner offers if that's the direction you're leaning toward.
Disclaimer: Loans and investments are subject to credit assessment and market conditions. Please read loan terms and scheme-related documents carefully before proceeding.