Yes, eligible mutual fund units can be pledged as security for a loan, subject to the lender's terms and the scheme's applicable rules. Pledging lets you borrow without selling the units, but pledged units are generally restricted from redemption or switching until the pledge is released.
How does pledging mutual funds work?
- You apply for a Loan Against Mutual Funds.
- The lender checks eligible schemes and their value.
- The required units are pledged or lien-marked.
- The lender approves and disburses the loan if you meet its conditions.
- The pledge remains until the loan obligation is discharged.
- The lender follows the applicable process to release the pledge.
SEBI-filed mutual-fund documents describe pledge/lien arrangements and restrictions on redeeming pledged units.
Source: https://www.sebi.gov.in/sebi_data/attachdocs/mar-2026/1774342977493.pdf
Can you redeem pledged units?
Generally, no. Pledged or lien-marked units cannot normally be redeemed or switched until the pledgee authorises release of the pledge or lien.
What happens if NAV falls?
Your investment can lose market value while the loan remains outstanding.
For example, if you pledge ₹6 lakh of mutual funds for a ₹3 lakh loan, the initial loan-to-value is:
₹3 lakh ÷ ₹6 lakh × 100 = 50%
If the portfolio falls 25%, its value becomes ₹4.5 lakh. The loan is still ₹3 lakh before repayments, so the illustrative LTV becomes:
₹3 lakh ÷ ₹4.5 lakh × 100 = 66.7%
The actual margin requirements and actions after a fall depend on the lender's agreement.
What should you check before taking LAMF?
Ask the lender about:
- Eligible schemes and AMCs
- Lending value or margin
- Interest rate
- Processing and other charges
- Repayment structure
- What happens if NAV falls
- Additional collateral requirements
- Pledge-release process after repayment
Do not assume every mutual fund is eligible or that the same lending value applies everywhere.
LAMF vs personal loan
LAMF uses investments as collateral and therefore carries collateral-value risk. A personal loan is generally unsecured but depends more heavily on income, credit profile and lender policy.
Compare the complete cost and repayment burden using the MLE Loan Against Mutual Funds page and MLE EMI & Prepayment Calculator.
MLE also explains what happens when your mutual-fund NAV falls.
FAQs
Can I borrow without selling mutual funds?
Yes, if the units and lender are eligible for a pledge-based loan.
Can I redeem pledged units?
Generally, not until the pledge or lien is released.
Are all mutual funds eligible?
No. Eligibility depends on the lender, scheme, AMC, holding format and applicable terms.
What happens if NAV falls sharply?
The collateral value falls while the loan may remain outstanding. Depending on the agreement, the lender may require additional security or repayment.
The bottom line
LAMF can provide liquidity without selling eligible mutual-fund units, but the investment remains exposed to market movements and pledged units have redemption restrictions. Check the lender's margin, costs and release process before borrowing.