{"id":42055,"date":"2025-09-15T14:32:19","date_gmt":"2025-09-15T09:02:19","guid":{"rendered":"https:\/\/www.kanakkupillai.com\/learn\/?p=42055"},"modified":"2025-09-15T14:32:19","modified_gmt":"2025-09-15T09:02:19","slug":"get-a-loan-against-mutual-funds-without-breaking-investment","status":"publish","type":"post","link":"https:\/\/www.kanakkupillai.com\/learn\/get-a-loan-against-mutual-funds-without-breaking-investment\/","title":{"rendered":"Get a Loan Against Mutual Funds Without Breaking Investment"},"content":{"rendered":"

Financial emergencies don\u2019t ask for permission. The geyser bursts in the middle of winter, your car decides to stop working right before a big trip, or worse, a sudden medical expense shows up. Most people rush for money during those times. Additionally, if you have been investing in mutual funds<\/strong><\/a>, your first instinct is frequently to \u201credeem some units.\u201d<\/p>\n

Sounds logical, right? You need money, so you sell what you own. But here\u2019s the thing: redeeming your funds at the wrong time can mess up your long-term plans. Imagine selling when the market dips. You not only lock in a loss but also miss the chance to benefit from a recovery. Add capital gains tax on top, and suddenly the quick fix looks very expensive.<\/p>\n

That\u2019s why more investors are waking up to a smarter alternative, taking a loan against mutual funds.<\/p>\n

Why Redeeming Mutual Funds is Not a Good Idea?<\/strong><\/h2>\n

Let\u2019s be honest, selling mutual funds feels easy. One click, money in your bank. But easy isn\u2019t always right. Here\u2019s what usually happens: A friend of mine sold equity funds worth \u20b95 lakh during the market correction of 2020 to cover personal expenses. Within a year, the same funds had grown nearly 40%. If he had just borrowed against them, he would have repaid his loan and still pocketed that massive growth.<\/p>\n

Instead, he lost twice first, by missing out on the gains, and second, by paying capital gains tax when he redeemed. This is why financial planners often warn against breaking investments unless you absolutely must. Your money in mutual funds is meant to grow, not get chopped up every time life throws a curveball.<\/p>\n

The Smarter Play: Loan Against Mutual Funds<\/strong><\/h2>\n

So what exactly is a loan against mutual funds (LAMF)? In simple words, you pledge your mutual fund units to a bank or NBFC (Non-Banking Financial Company), and in return, they give you a loan. Similar to how a loan against securities<\/a> works.<\/p>\n

The best part? Your funds don\u2019t stop working for you. They remain invested in the market while you use the loan for whatever urgent need you have. It could be a medical bill, your child\u2019s school or college fees, or even just bridging a short-term cash crunch.<\/p>\n

Unlike personal loans or credit cards, the interest rates here are much lower, often in the range of 9 to 12 percent. And since it\u2019s a secured loan, lenders are more relaxed with documentation. Many now offer fully digital processes; just log in and pledge your funds, and the loan is disbursed quickly.<\/p>\n

Why It Makes Sense for Investors?<\/strong><\/h2>\n

Let\u2019s put numbers to this. Suppose you have \u20b98 lakh invested in mutual funds. You need \u20b93 lakh for an emergency. Instead of redeeming, you pledge your portfolio. The lender approves 50% of your holdings\u2019 value as a loan, which covers your needs comfortably.<\/p>\n

Now here\u2019s the magic: your \u20b98 lakh stays in the market. If the market grows at, say, 10% that year, your investments could become \u20b98.8 lakh. Even after paying the interest on your loan, you come out ahead compared to redeeming. Plus, you avoid capital gains tax because you never sold.<\/p>\n

Things to Keep in Mind<\/strong><\/h2>\n

Now, I don\u2019t want to paint this as a fairy tale. A loan against mutual funds<\/a> is smart, but it\u2019s not a free pass.<\/p>\n