Margin Call Triggers Explained: What Causes Them & How to Handle It

If you've ever pledged your mutual fund units to get a loan, chances are you've heard the term "margin call" thrown around. But what does it really mean? And why should it matter to you?

A margin call is essentially a warning signal — it tells you that the value of your pledged investment has dropped, and you need to take action to maintain your loan. For anyone using Loan Against Mutual Funds (LAMF) or Loan Against Securities (LAS), understanding margin call triggers is key to protecting your investments and your credit health.

In this article, we’ll break it all down in simple terms. From what causes a margin call to how you can avoid one, and how platforms like Quicklend are designed to give you more control and less stress.

Key Takeaways

• Learn what causes a margin call and how to spot it early
• Understand the steps to manage or avoid a margin call altogether
• Discover how Quicklend’s LAS offering helps reduce margin call risks

What is a Margin Call in LAS?

Before you worry about margin calls, let’s first understand how LAS works and where margin calls come into play.

How does LAS work?

Loan Against Securities (LAS) lets you borrow money by pledging your mutual funds or other eligible investments as collateral.

• You retain ownership of the investments while using them to raise funds
• No need to liquidate your portfolio — your money keeps growing
• You get access to a credit line, and you only pay interest on what you use

Pledge vs liquidation: What you retain

When you pledge your mutual fund units:

• You don’t sell them, so you continue to earn returns
• You can redeem them once the loan is closed
• Unlike liquidation, your investment goals stay on track

Example: If Rahul pledges ₹2.5 lakh worth of mutual funds to get a ₹1.5 lakh credit line, he keeps ownership of his funds while accessing liquidity.

LTV (Loan-to-Value) ratio and its role

The LTV ratio determines how much you can borrow against your investments.

• For mutual funds, it's usually capped at 50-60% of the fund value (as per RBI guidelines, as of 2025)
• If your pledged fund value drops, your LTV rises
• A higher-than-permitted LTV can trigger a margin call

Why do margin calls happen in LAS?

Margin calls are triggered when the value of your pledged assets falls below a safe threshold.

• Market volatility can reduce mutual fund NAVs
• Maintenance margin is the minimum value you need to maintain
• AMC-side changes like rebalancing or restructuring can also affect your pledge

What happens during a margin call?

If your collateral value drops, here's what typically happens:

• You receive a notification via call, email, or app alert
• You’re given a window (usually 2-5 days) to top up or repay
• If no action is taken, the lender may sell part of your pledged assets

What Triggers a Margin Call?

Even if you manage your loan well, certain factors beyond your control can trigger a margin call.

Is it just market volatility?

The most common reason for a margin call is a sharp drop in your mutual fund's NAV (Net Asset Value).

• A broad market correction can bring down the value of your pledged units
• Sectoral crashes (e.g., tech or pharma) can affect specific funds

For example, if Anjali's pledged mid-cap mutual fund drops 12% in a week, she might breach the LTV limit and face a margin call.

Do lender policies impact it?

Yes. Your lender may revise internal policies which could affect your loan:

• Reduction in permissible LTV ratios
• Reclassification of your mutual fund's risk profile

If your lender becomes stricter about which funds they accept or how they value them, it could trigger a call.

Can portfolio changes cause this?

Sometimes, the mutual fund company (AMC) makes internal changes that impact your collateral:

• Mergers or restructuring of schemes
• Large redemptions by other investors

Does credit line utilisation matter?

Absolutely. Overusing your credit line can also raise red flags.

• Drawing amounts too close to your sanction limit increases your risk exposure
• Not replenishing the line when fund values drop can accelerate margin stress

How Can You Handle a Margin Call?

When you get a margin call, it’s not the end of the world. You have options.

What should you do first?

Take a deep breath and understand the situation:

• Read the margin call notice thoroughly
• Note the shortfall amount and the deadline to act
• Avoid delays—time is crucial

Can you add more collateral?

Yes. You can top up your pledged amount to bring your LTV back within the required range:

• Pledge additional mutual fund units
• Use other permitted securities (like bonds or ETFs, depending on lender policy)

This keeps your credit line active without needing repayment.

Should you repay partially or fully?

If you don’t have eligible funds to pledge, consider repaying:

• Partial repayment reduces the loan outstanding, helping bring LTV down
• Full repayment may be a good idea if you expect further market volatility

This choice depends on your liquidity needs and market outlook.

How can Quicklend help you?

At Quicklend, we make margin call management simple:

• Real-time alerts via WhatsApp, SMS, and email so you’re always informed
• Interest-only EMIs, so your cash flow isn’t strained
• Quick top-ups and repayment options directly through our platform
• Dedicated customer support to guide you every step of the way

Conclusion

A margin call is not a penalty — it’s a prompt to re-balance. With the right awareness and the right lending partner, you can manage margin calls without disrupting your financial goals.

At Quicklend, we’re committed to giving you full control of your credit journey. From smart alerts to flexible repayment and human support, we ensure your investment-backed borrowing stays smooth, simple, and stress-free.

Ready to unlock liquidity the smarter way? Explore our Loan Against Mutual Funds today.

This is general guidance. For personalized loan advice, contact our advisors.