Loan Against SIPs: Unlocking Smart Financing Option

When you need urgent funds, breaking your investments can disrupt your long-term financial plans. This is where a loan against SIP comes into play — allowing you to borrow without redeeming your mutual fund units. In India, this facility is gaining popularity for its convenience, lower interest rates, and flexibility compared to traditional personal loans.

Key Takeaways

• Loan against SIP lets you borrow against your mutual fund investments without selling them.
• Interest rates are usually lower than personal loans due to their secured nature.
• Ideal for short-term funding needs without breaking your investment goals.

What exactly is a loan against SIP?

A loan against SIP (Systematic Investment Plan) is a secured credit facility where you pledge your mutual fund units to a bank or NBFC to get funds. Instead of liquidating your investments, the lender marks them as collateral. You continue earning returns on your investments while repaying the loan.

How does a loan against SIP work in India?

When you apply, the lender evaluates the current Net Asset Value (NAV) of your SIP holdings. Based on this, they approve a percentage (often 50 – 70%) as the loan amount. Your mutual fund units are lien-marked — meaning you can’t redeem them until the loan is cleared.

For example:

• SIP portfolio value: ₹5,00,000
• Loan-to-value ratio: 60%
• Eligible loan: ₹3,00,000

Why should I consider a loan against SIP instead of redeeming my funds?

• Retain investment growth while getting liquidity.
• Avoid exit load or capital gains tax triggered by premature redemption.
• Often faster approval compared to unsecured loans.

Who is eligible to apply for a loan against SIP?

Typically, eligibility includes:

• Age: 21 years or above.
• Active SIPs with a minimum market value (varies by lender).
• KYC compliance with mutual funds.

How much loan amount can I get against my SIP?

The amount depends on:

• Current NAV of your mutual fund units.
• Loan-to-value ratio set by the lender (50 – 70%).
• Your repayment capacity.

Check out our loan against mutual funds calculator to estimate eligibility.

What are the benefits of taking a loan against SIP?

• Lower interest rates compared to unsecured loans.
• Quick processing due to collateral security.
• No impact on investment returns if markets perform well.

What risks should I be aware of before taking this loan?

• If markets fall, your pledged units’ value may drop, and lenders may demand additional security.
• Failure to repay can lead to the sale of pledged units.

How can I apply for a loan against SIP step-by-step?

1. Contact your bank or any other NBFC.
2. Submit your mutual fund portfolio statement.
3. Fill out the application form.
4. Sign lien marking documents.
5. Receive loan disbursement within a few days.

What documents are needed for a loan against SIP?

• KYC documents (PAN, Aadhaar).
• Bank statements.
• Mutual fund account statement.

How is the interest rate decided for a loan against SIP?

Interest rates vary by lender but are generally lower than unsecured loans because the loan is secured. Rates can be fixed or floating depending on market conditions.

Is a loan against SIP better than a personal loan?

For borrowers with active investments, a loan against SIP can be cheaper, quicker, and more tax-efficient than a personal loan. However, if you have no investments or need longer repayment terms, a personal loan might suit better.

Can I prepay or close my loan early without penalties?

Many lenders allow early closure without charges, but it’s wise to confirm terms beforehand.

What are some tips to manage a loan against SIP wisely?

• Borrow only what you need.
• Repay on time to avoid liquidation of units.
• Monitor market performance for pledged funds.

Conclusion

If you need short-term liquidity and have a solid SIP portfolio, this is a smart financing tool that keeps your investments intact while giving you quick access to funds.

For more resources, check Quicklend Blog for insights on smart borrowing.

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