How to Choose the Right Mutual Funds as Collateral for a Loan

Need funds but don’t want to sell your mutual fund investments? You're not alone. More and more Indian investors today are exploring Loans Against Mutual Funds (LAMF) as a way to raise short-term capital without disturbing their long-term portfolio.

But here's the catch: not all mutual funds qualify as good collateral. Choosing the right one can make a big difference in how much you can borrow and how safely you can manage that loan.

Let’s break it down simply.

Which Mutual Funds Are Accepted by Lenders?

Not every mutual fund in your portfolio is eligible for pledging. Lenders have clear preferences.

What types of funds are usually accepted?

• Debt Mutual Funds: Low risk and less volatile
• Large-Cap Equity Funds: Stable returns over time
• Hybrid Funds: Balanced exposure to equity and debt

What types are usually rejected?

• Sector/Thematic Funds: Too volatile and concentrated
• International or Niche Funds: Often outside lender criteria
• ELSS & Closed-Ended Funds: Lock-ins restrict access

What do lenders look at while evaluating?

• Historical NAV trends and Assets Under Management (AUM)
• Exit load structure and lock-in status
• Volatility score and risk grade as per fund factsheets

Example: Suppose you have ₹5 lakhs in a pharma sector fund and ₹5 lakhs in a large - cap fund like SBI Bluechip. The lender is more likely to accept the latter as collateral due to its broader market exposure and lower risk.

How to Choose the Best Fund to Pledge?

The goal is to pick a fund that gives you the highest loan value with the least risk.

What should you consider before pledging?

• Volatility: Lower volatility = more predictable NAV = better for borrowing
• Liquidity: Avoid funds with high exit loads or lock-ins
• Past Performance: Stable 3 – 5 year returns signal a reliable asset

Which funds are commonly accepted?

• SBI Bluechip Fund (Large-cap)
• HDFC Corporate Bond Fund (Debt)
• ICICI Prudential Balanced Advantage Fund (Hybrid)

Can SIP investments be pledged?

Yes, if units are fully allotted in your demat. Most lenders, including Quicklend, also allow:

• Partial pledging
• Top-ups on the same folio

Is This the Right Strategy for You?

Pledging mutual funds can be a smart move if you need funds temporarily without disturbing your long-term financial goals.

What are the benefits?

• Instant liquidity without selling your investments
• Continued compounding of your portfolio
• Lower interest rates compared to unsecured loans

What are the risks?

• Margin calls if fund value drops significantly
• Potential loan default if markets are highly volatile
• Your borrowing limit fluctuates with NAV changes

How can Quicklend help?

• Instant approvals and fast disbursals
• No pre-closure charges or hidden fees
• Easy-to-use eligibility calculator tools to help you plan better

Conclusion

Choosing the right mutual funds for a loan isn’t about picking your top performer — it’s about selecting the one your lender sees as stable, liquid, and dependable.

Look for funds with low volatility, consistent returns, and a clean structure. The right collateral strategy helps you borrow smartly without disturbing your investment journey.

This is general guidance. For personalized loan advice, contact our team at Quicklend.