For many Indian professionals, building an investment portfolio is a source of pride and financial security. Whether it’s through monthly SIPs in equity mutual funds or careful allocation in debt instruments, the goal is almost always long-term wealth creation. But what happens when you encounter a short-term financial need—be it a medical emergency, business opportunity, or even your child’s education expenses—and don’t want to disrupt your carefully laid investment plans?
Most people consider redeeming their mutual funds, breaking fixed deposits, or taking high-interest personal loans. However, there’s a smarter, lesser-known financial tool that allows you to raise funds without liquidating your assets or affecting your long-term goals: leveraging your existing investments.
Mutual Funds as Collateral: A Growing Trend in India
In the past few years, financial institutions—both banks and NBFCs—have started offering loans against mutual fund holdings. This facility allows investors to pledge their mutual fund units as collateral and get access to short-term credit. Unlike traditional loans, the process is largely digital, quick, and hassle-free.
Let’s consider an example. Suppose you’ve accumulated ₹10 lakh worth of mutual fund units over time. Instead of redeeming these units, you can use them as security to get a loan of up to ₹5 lakh (typically 50% of the value for equity funds and 70% for debt funds), depending on the institution’s policy. This way, your investments stay intact and continue to grow, while your financial needs are taken care of.
When Does This Make Sense?
This approach is ideal for mid-career professionals between 30 and 50 who’ve been consistently investing but find themselves needing liquidity for short-term reasons. For instance:
- A business owner wants to grab a one-time inventory deal.
- A salaried professional needs urgent funds for home renovation.
- An entrepreneur is waiting for client payments and needs working capital.
In all these cases, liquidating long-term investments may seem like the only option, but it doesn’t have to be.
Key Advantages of Leveraging Investments
The ability to use investments enables companies to tap new opportunities, boost business efficiency, and maximize revenues. It is also used to finance specialist marketing campaigns, which result in high-quality B2B leads that will keep the pipeline full and the conversion rates greater. They also invest in developing innovation and talent, thus giving them the resources to keep them competitive.
- Retain Your Portfolio: You don’t have to break your investments or interrupt your SIPs. This is crucial in a market like India, where compounding over time can create massive long-term value.
- Quick Access to Funds: Most lenders offer approvals and disbursals within the same day once your folios are verified. The process is digital with minimal paperwork—just your PAN, Aadhaar, and bank details.
- Lower Interest Rates: Since the loan is secured, the interest rate is usually lower than that of personal loans. For example, SBI currently offers loans against mutual funds at 11.50% per annum, while NBFCs offer even lower rates starting from 9.38%.
- Flexible Repayment Options: Many institutions offer overdraft facilities where you pay interest only on the amount utilized, making it ideal for fluctuating cash needs.
- Preserve Financial Goals: Your long-term goals—like retirement, a child’s higher education, or wealth creation—remain untouched.
Points to Keep in Mind
While the facility is extremely beneficial, there are a few things you should consider:
- Eligible Funds: Not all mutual funds are accepted. Generally, large-cap equity funds, debt funds, and liquid funds from SEBI-recognised AMCs are preferred.
- LTV (Loan-to-Value): The loan amount sanctioned will be a percentage of the mutual fund’s current value. This can fluctuate based on market performance.
- Market Volatility: Since your portfolio remains invested, a sudden dip in NAV might result in a margin call where the lender may ask for additional collateral or partial repayment.
- Documentation and Processing Fees: Although the process is digital, there may be minimal documentation charges and lien marking fees.
Loan against Investments: A Smart Financial Bridge
Many of my clients, especially those in their 30s and 40s, hesitate to liquidate their mutual fund investments because they’ve worked hard to build that corpus. For them, a loan against investments has proven to be a useful bridge between their present financial needs and future wealth goals.
It offers a unique combination of liquidity, flexibility, and preservation of financial discipline—something very few financial products can match. If you’re someone who has spent years building your mutual fund portfolio, now might be the time to let that portfolio support you, not just in the future, but today.
