Mutual funds are built for the long game. But financial needs rarely follow a plan, and when liquidity runs short, the default move is to redeem units, breaking compounding and sometimes locking in losses.
A (LAMF) changes that equation. You borrow against your portfolio without touching your investments. The concept is straightforward — what’s worth understanding closely is the interest rate structure, because that’s what determines whether this is a smart move or an expensive one.
How interest rates on LAMF work?
Unlike some traditional loans where interest is charged on the full sanctioned amount, loans against mutual funds by Bajaj Finance charge interest only on the amount used. This means borrowers are assigned a limit based on the value of their mutual fund holdings but are charged interest only on the amount they withdraw.
When evaluating the , Bajaj Finance is currently offering loans in the range of 8% to 12% per annum*. Rates may vary based on eligibility and fund type.
Rates may vary based on eligibility and fund type.
Factors that influence the interest rate
Several variables determine the rate at which a loan against mutual funds is offered:
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Type of mutual fund: Debt funds generally attract lower interest rates compared to equity funds, as they are considered less volatile.
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Loan-to-value (LTV) ratio: Higher borrowing against the portfolio increases risk for the lender and may lead to higher rates.
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Market conditions: Since mutual funds are market-linked, volatility can indirectly influence lending terms.
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Lender policies: Different financial institutions price risk differently and may offer varying rates and structures.
A quick way to evaluate if the interest rate works for you
Before opting for a loan against mutual funds, run through a few simple checks:
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Compare returns vs borrowing cost — If your mutual funds are expected to outpace your loan costs, borrowing may help you avoid breaking compounding.
Example: Instead of redeeming Rs. 3 lakh during a market dip, you borrow at 9% and stay invested — potentially recovering value when markets improve.
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Match the loan to your time horizon — This structure works best for short-term or staggered needs, not long-term borrowing.
Example: Using the loan for a 6-month cash gap is efficient; stretching it for 2–3 years can increase your overall interest outgo.
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Use only what you need — Since interest is charged only on the withdrawn amount, disciplined usage keeps costs low.
Example: You’re approved for Rs. 10 lakh but withdraw only Rs. 2 lakh for an immediate expense — your interest is calculated only on Rs. 2 lakh.
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Be prepared for market movement — Your mutual funds stay invested, so their value can fluctuate.
Example: If markets fall and your portfolio value drops, you may need to either add more units or partially repay the loan to maintain the required margin.
The bottom line
A loan against mutual funds is not just about accessing funds — it is about doing so efficiently without disrupting long-term financial goals.
Interest rates play a key role, but they should be evaluated in context: how the loan is structured, how much is used, and how market movements may impact the overall arrangement.
Used thoughtfully, it can be one of the few borrowing options where you’re not forced to trade off between liquidity and long-term returns.
*Terms and conditions apply
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