What Changed, in Short
If you hold mutual funds and occasionally need cash without selling them, this update matters to you. In February 2026, the Reserve Bank of India (RBI) revised the rules governing Loans Against Securities (LAS) — the umbrella category that covers Loan Against Mutual Funds (LAMF) and loans against shares. The revision raises how much of your mutual fund portfolio's value you can borrow against, and sets a single system-wide borrowing cap per person.
After an industry-requested extension, these rules are effective from July 1, 2026 (the original deadline of April 1, 2026 was pushed back by three months to give banks and NBFCs more time to update their systems).
Here's the quick version:
- Loan-to-Value (LTV) limits went up for both shares and mutual funds, meaning you can now borrow a larger percentage of your portfolio's value than before.
- A new ₹1 crore per-borrower cap applies across the entire banking system — not per bank, but added up across every lender you borrow from.
- The changes apply uniformly to banks and NBFCs, closing a gap where debt mutual funds previously had no fixed RBI-mandated limit and lenders set their own.
Understanding LTV: The Number That Decides Your Loan Amount
The Loan-to-Value (LTV) ratio is the maximum percentage of your pledged mutual fund units' current market value that a lender can advance as a loan. If your equity mutual fund holdings are worth ₹10 lakh and the LTV is 50%, you can borrow up to ₹5 lakh. Raise the LTV to 75%, and the same ₹10 lakh portfolio can now unlock ₹7.5 lakh.
LTV matters because your mutual fund units aren't sold — they're pledged (a lien is marked on them by the fund's Registrar and Transfer Agent, or by your depository if held in demat form). Your investment keeps earning market returns while the loan is outstanding.
Old vs New LTV Limits
| Collateral Type | LTV Before Feb 2026 | LTV From July 1, 2026 |
|---|---|---|
| Listed equity shares | Up to 50% | Up to 60% |
| Equity mutual funds | Up to 50% | Up to 75% |
| Debt mutual funds | No fixed RBI cap (lender's discretion) | Standardised, and higher than equity (reported between 75–85% depending on the lender) |
| Per-borrower cap, system-wide | ₹20 lakh (demat) / ₹10 lakh (physical) | ₹1 crore across all banks combined |
| Loans for IPO/ESOP subscription | ₹10 lakh | ₹25 lakh |
Important: These are RBI ceilings, not guaranteed rates. Individual lenders and platforms can — and often do — apply more conservative internal limits within these caps based on their own risk policies, the specific fund's volatility, and your profile. Always check the live LTV and interest rate on your lender's page before applying, since it may sit below the new regulatory maximum.
Why This Matters If You're Considering LAMF
1. You can unlock more cash without selling
Say you hold ₹15 lakh in equity mutual funds. At the old 50% LTV, you could borrow up to ₹7.5 lakh. At the new 75% ceiling (subject to your lender's actual policy), that headroom rises to ₹11.25 lakh — without redeeming a single unit or breaking your long-term investment plan.
2. It's more tax-efficient than redeeming, especially now
Since the July 2024 Union Budget, long-term capital gains (LTCG) on equity mutual funds held over a year are taxed at 12.5% on gains above the ₹1.25 lakh exemption threshold per financial year. Pledging your units instead of selling them doesn't trigger a tax event at all — a loan is not a redemption. With LTV ceilings now higher, this route works for a bigger portion of your portfolio than it used to.
3. The ₹1 crore cap is a ceiling, not a target
If you're used to spreading borrowing across multiple lenders, note that the new ₹1 crore limit is aggregated across the entire banking system for LAS-type loans (loans against shares, mutual funds, REITs, and InvITs). You can't route around it by borrowing smaller amounts from several banks.
LAMF vs Personal Loan vs Redeeming Your Mutual Funds
Since MLE offers both a Loan Against Mutual Funds product and a Personal Loan product, here's how the three routes to cash typically compare:
| Factor | Loan Against Mutual Funds | Personal Loan | Redeeming Mutual Funds |
|---|---|---|---|
| Investment stays invested? | Yes — units are pledged, not sold | Yes (no impact on holdings) | No — units are sold |
| Typical starting rate | From ~9.5% p.a.* | From ~10.5% p.a. for high-CIBIL borrowers, up to ~14% for others* | Not applicable |
| Credit score dependency | Low — largely secured by the pledged units | High — score materially affects approval and rate | Not applicable |
| Tax event triggered | No | No | Possibly — LTCG/STCG tax may apply |
| Disbursal speed | Typically same-day to a few hours | Can range from minutes to a few days | Usually 1–3 business days for redemption credit |
| Best suited for | Short-term liquidity needs when you don't want to disturb your portfolio | Larger or longer-tenure needs, or when you don't hold sizeable investments | When you're exiting the investment anyway |
*Indicative rates as displayed on MLE's product pages at the time of writing; always check current rates before applying, since they change with market conditions and your eligibility.
For a like-for-like comparison of EMI outflow if you're weighing a personal loan instead, MLE's EMI & Prepayment Calculator lets you see the exact monthly payment and total interest across different tenures.
Who Should — and Shouldn't — Use LAMF
LAMF tends to work well for:
- Salaried professionals or self-employed individuals with a short-term cash need (medical expense, wedding cost, business working capital) who don't want to break long-term equity or debt investments.
- Investors sitting on unrealized gains who want to avoid triggering LTCG tax by selling.
- Anyone who wants to borrow largely on the strength of their portfolio rather than their credit score.
It's not the right fit if:
- You need the funds for a long tenure — LAMF is generally structured as a short-to-medium-term facility (often an overdraft or line of credit), and carrying it too long can erode the benefit of staying invested.
- Your mutual fund NAV is highly volatile — a market fall can trigger a margin call, requiring you to pledge additional units or repay part of the loan to restore the LTV ratio.
- Your funds are in a lock-in period (like ELSS within its 3-year lock-in) or a closed-ended scheme, since these typically aren't eligible for pledging.
Takeaway: Higher LTV limits mean more borrowing headroom, but they don't reduce the underlying risk — a loan against a volatile asset still needs to be managed carefully. Borrow only what you can comfortably service, and keep an eye on margin requirements if markets turn choppy.
Frequently Asked Questions
What is a Loan Against Mutual Funds (LAMF)? It's a secured loan where you pledge your mutual fund units as collateral, without selling them, to access funds while your investment continues to stay invested and earn market-linked returns.
Did RBI's new rules increase how much I can borrow? Yes. From July 1, 2026, RBI has raised the maximum LTV ceilings for shares and mutual funds, and standardised limits for debt funds that previously had no fixed cap. Equity fund LTV can now go up to 75%, up from 50% earlier.
Does availing a LAMF loan affect my credit score? Since it's a secured loan backed by your pledged units, LAMF approval relies less on your credit history than an unsecured personal loan does. That said, it's still good practice to keep track of your overall credit profile — MLE's Credit Score tools can help with that.
Can NRIs or businesses avail a loan against mutual funds? Under the revised framework, businesses, trusts, and NRIs may also be eligible, subject to the specific lender's own criteria and documentation requirements.
What happens if my mutual fund's NAV falls after I've taken the loan? Lenders monitor the market value of pledged units on an ongoing basis. If the value drops enough to breach the LTV threshold, you may be asked to pledge additional units or repay part of the loan to restore the required margin.
Is a Loan Against Mutual Funds cheaper than a personal loan? It's often priced lower because it's secured collateral, whereas a personal loan is unsecured. However, actual rates depend on the lender, the fund type, and your specific profile — always compare current rates before deciding.
Ready to Check Your Numbers?
If you're weighing whether to pledge your mutual funds or take a personal loan instead, start by comparing your options: explore MLE's Loan Against Mutual Funds page to see live LTV and rates from partner platforms, or run the numbers on a personal loan using the EMI & Prepayment Calculator. If you already have a personal loan running and want to cut down the interest instead, our guide on how prepaying extra on your personal loan can save you over ₹1.2 lakh in interest walks through the math.
Disclaimer: Loans and investments are subject to credit assessment and market conditions. Please read loan terms and scheme-related documents carefully before proceeding.