Does Mutual Fund NAV Really Matter When Taking a Loan?

When taking a loan against mutual funds, one key term you’ll hear is NAV—Net Asset Value. It represents the current market value of each unit in your fund and often fluctuates daily.

But how important is it when applying for a loan?

This article explores the role of NAV in loan eligibility, how it impacts the amount you can borrow, and whether short-term changes in NAV should influence your decision to borrow against your investments.

Key Takeaways:

• NAV (Net Asset Value) of mutual funds changes daily and directly affects your LAMF borrowing power.
• A higher NAV means higher loan eligibility based on your fund’s value.
• LTV ratios typically range from 45% for equity funds to 75% for debt funds.
• Timing your application when NAV is high can help you get better loan terms.
• A drop in NAV may lead to a margin call, requiring extra collateral or partial repayment.

Why NAV Timing Matters in LAMF

Loan Against Mutual Funds (LAMF) lets you borrow money without selling your mutual fund units. You pledge your investments as collateral and continue to benefit from potential market growth. However, since the value of your mutual fund units is based on Net Asset Value (NAV)—which changes daily—the NAV on your application day can significantly impact your loan amount.

What Is NAV and How It Affects Your Loan

NAV represents the per-unit value of a mutual fund’s portfolio. It is calculated after the market closes each day and reflects the fund’s current market value.

Why it matters:

• Loan Amount: You can borrow a percentage of the current NAV (e.g., 75% for debt funds, 45% for equity).
• LTV Ratio: Loan-to-Value determines how much of your mutual fund’s value a lender will lend.
• Margin Calls: If NAV drops post-loan, the LTV may exceed the limit, triggering a call for additional collateral or partial repayment.

 Example:

If you pledge mutual fund units worth ₹2,00,000 and the allowed LTV is 75%, your loan amount is ₹1,50,000. If the NAV drops, reducing your units’ value to ₹1,80,000, your LTV shoots up, risking a margin call.

How to Time Your LAMF Application

• Apply When NAV Is High

If your mutual fund’s NAV is peaking or trending upward, applying during this period lets you borrow more for the same number of units.

• Avoid Market Dips

During market downturns, NAVs drop, reducing your collateral value. Applying during this period might result in lower loan amounts and increased risk of margin calls if NAV falls further.

Understand Your Fund’s Volatility

• Debt Funds: More stable NAVs and higher LTV (up to 75%).
• Equity/Mid-/Small-Cap Funds: Greater NAV volatility; higher risk of margin calls.

• Watch Daily NAV Movements

NAVs are calculated daily post-market. Submitting your loan application on a day when NAV is expected to be high can improve your borrowing capacity.

Tips to Maximize Your LAMF Benefits

• Maintain a Safety Buffer

Avoid borrowing the maximum amount. A buffer protects you from margin calls in case NAV dips unexpectedly.

• Pick Funds with Low Volatility

Funds with high ratings and consistent performance are more stable, reducing the chances of sudden drops and lender concerns.

• Compare Lenders

Check interest rates, processing fees, and margin call policies across lenders—banks and NBFCs offer different terms.

• Be Margin-Call Ready

Know your lender’s policies. If NAV drops, be prepared to provide more units or partial repayment.

• Use for Essential Expenses

LAMF should be used for urgent financial needs—like medical costs, education, or business needs. Avoid using it for non-essential spending.

Conclusion: Timing Can Maximize Value

Loan Against Mutual Funds can be a powerful financing option—but only if used wisely. Since NAV determines how much you can borrow, timing your loan when NAV is relatively high can increase your loan value and reduce future risk.

By understanding NAV fluctuations, comparing lenders, and applying strategic borrowing practices, you can unlock liquidity without derailing your investment goals.

At Quicklend, we’re here to help you make smarter, well-timed borrowing decisions. Reach out to one of our advisors to find out the best time to borrow against your portfolio.