The way Indians borrow money is shifting. Personal loans remain popular — they are accessible, quick, and require no collateral. But in 2026–27, a smarter borrowing option has gone mainstream for mutual fund investors: pledging their portfolio units to get a loan at significantly lower interest rates, while keeping their investments fully intact and continuing earning returns.
Both Loan Against Mutual Funds and personal loans serve real needs. They work differently, cost differently, and suit different financial situations. Knowing which option fits a specific need — and why — can save a meaningful amount of money over even a 12-month borrowing window. This article covers both in full, with rates, eligibility, risks, and the situations where each one makes the most sense.
What is a Loan Against Mutual Funds?
The concept is straightforward once you hear it. Mutual fund units have real monetary value. Instead of selling them to raise cash, you pledge them as security and borrow against that value.
The lender marks a lien on the units. Nothing dramatic happens to the portfolio—units stay in the account, NAV keeps moving, SIP’s keeps running, and returns continue accumulating. The only restriction is that pledged units cannot be sold or switched while the lien is active. Repay the loan, the lien gets lifted, and full control returns. That is it.
Funds that can be pledged:
- Equity mutual funds
- Debt mutual funds
- Hybrid mutual funds
- ELSS units — but only after the 3-year lock-in period ends. During lock-in, they are ineligible
Platforms like Bulwark Capital have made this entirely digital. Application, KYC verification, pledging, approval, disbursal — the whole thing happens online. Same-day disbursal is now standard in most cases.
Key Features of Loan Against Mutual Funds
- The loan against mutual funds interest rate in 2026–27 typically ranges between 9% and 12% annually—considerably lower than any unsecured alternatives
- Works like an overdraft. Draw what is needed and pay interest only on the utilized amount. The rest of the sanctioned limit stays idle at no cost
- SIP does not stop. NAV keeps ticking. Investment does not go on hold because a loan was taken against it
- No units are redeemed, which means no capital gains tax event is triggered. This point matters more than most people realise, especially for equity funds that have appreciated significantly
What is a Personal Loan?
No collateral. No investments needed. A personal loan is approved based on income, credit score, and employment profile. Banks, NBFCs, and fintech apps all offer versions of it. This is genuinely one of the most accessible credit products available in India today.
Typically available to:
- Salaried professionals across private and public sector
- Self-employed individuals and small business owners
- Anyone with a CIBIL score above 700 and a demonstrable regular income
The trade-off for that accessibility is the rate. Since personal loans are unsecured, the risk is more toward the lender’s side, and that risk gets priced into the interest rate.
Key Features of Personal Loans
- Fixed EMI every month — same amount, predictable, straightforward to budget
- No end-use restriction—medical bills, home renovation, wedding expenses, travel; it does not matter
- Disbursal within 2 to 5 working days in most cases
- Personal loan interest rates range from 14% to 24% annually in 2026–27. Top-tier applicants with excellent credit might see offers closer to 12–13%, but that is not the common experience
Loan Against Mutual Funds Interest Rate vs Personal Loan Interest Rates
Numbers are the clearest way to understand this comparison. Everything else is secondary.
Loan Against Mutual Funds Interest Rate
For 2026–27, interest rates on loans against mutual funds usually fall in the 9% to 12% per annum range.
Debt funds attract lower rates because their NAVs are relatively stable, unlike equity funds, which has more flexibility.
Equity funds carry more volatility risk for the lender—rates reflect that, sitting slightly higher within the range.
Other factors that influence the rate:
- LTV ratio—Debt funds typically allow up to 70–80% of current value, equity funds around 50–60%
- Lender type—Public sector banks tend to follow rigid pricing; digital NBFCs often offers competitive pricing
- Credit history—It’s not checked during the application process as more weightage is given to the portfolio.
Personal Loan Interest Rates
Personal loan interest rates in 2026–27 run from 14% to 24% per annum for most applicants. Borrowers maintaining CIBIL scores above 750, stable salaried jobs at large companies, and low existing debt can easily find offers toward the lower end. Getting below 12% without collateral remains rare regardless of profile strength.
What moves the rate:
- CIBIL score—any score below 700 leads to rejection or rates may go above 20%
- Employer category — MNCs and government jobs carry more lender confidence than informal employment
- Debt-to-income ratio — existing EMIs eating into monthly income push rates higher
- Personal loan options differ significantly across lender types — bank rates, NBFC rates, and fintech offers can vary by 4–6% for the same applicant profile
Loan Against Mutual Funds vs Personal Loan: Quick Comparison Table
| Feature | Loan Against Mutual Funds | Personal Loan |
| Interest Rate | 9%–12% p.a. | 14%–24% p.a. |
| Collateral Required | Mutual fund units | None |
| Processing Time | Same day on digital platforms | 2–5 working days |
| Repayment Structure | Flexible — interest-only option available | Fixed EMI every month |
| Primary Risk | NAV drop, margin call | Credit score, repayment pressure |
| Tax on Borrowing | No capital gains triggered | No tax benefit |
| Best Suited For | Investors needing short-term liquidity | Borrowers without an investment portfolio |
Eligibility Criteria Comparison
Loan Against Mutual Funds Eligibility
Loan against mutual funds eligibility is simpler than most people assume. Requirements:
- Mutual fund units not held in Demat or folio format
- KYC completed — PAN and Aadhaar both required
- Funds must belong to AMCs on the lender’s approved list — most major fund houses qualify
- Units must be free from any active lock-in
One thing worth knowing — credit score plays a smaller role here than in any other loan product. The portfolio does the talking. Even if a borrower has an average CIBIL score they can still get their loan approved faster if they maintain a strong equity portfolio.
Personal Loan Eligibility
For a personal loan, lenders assess:
- Age between 21 and 60 years
- CIBIL score of 700 or above — lower scores either face rejection or significantly inflated rates
- Steady income from salaried employment or business
- Existing obligations — the higher the current EMI burden, the worse the terms offered
Pros and Cons: Loan Against Mutual Funds vs Personal Loan
Advantages of Loan Against Mutual Funds
- Interest saving is the headline advantage and it is real — on Rs. 5 lakh over 12 months, the gap between 10% and 18% is approximately Rs. 22,000 in interest alone
- Portfolio keeps earning throughout. If the fund generates 13% annually and the loan costs 10%, the real net borrowing cost is close to nothing
- No capital gains tax — unlike redeeming equity units held for less than a year, which attracts 20% STCG
- Repayment flexibility — many lenders allow interest-only monthly payments with principal cleared at the end of the tenure
Disadvantages of Loan Against Mutual Funds
- Margin call risk is real. A sharp market correction can push the loan above the permitted LTV — the lender will ask for immediate top-up or partial repayment
- Borrowing limit is capped by portfolio value and LTV ratio — large requirements may not be fully covered
- Pledged units are locked — cannot redeem, switch, or exit any pledged fund until the loan clears
Advantages of Personal Loans
- No investment portfolio required — accessible to a far wider group of borrowers
- Higher loan amounts — some lenders go up to Rs. 40–50 lakh for well-qualified applicants
- Fixed EMI means no market exposure, no margin calls, no surprises mid-tenure
- The rate is agreed upfront and does not change regardless of what markets do
Disadvantages of Personal Loans
- Total interest outflow over the same tenure is significantly higher — this compounds painfully on longer tenures
- EMI commitment continues regardless of cash flow situation in any given month
- Credit score deterioration during the loan period can complicate refinancing or future borrowing
- Processing fees and prepayment penalties add meaningfully to the actual cost
When Should You Choose a Loan Against Mutual Funds?
- A short-term cash requirement and a mutual fund portfolio exists to pledge
- Funds have appreciated well — redeeming them means paying capital gains tax and losing compounding momentum
- Keeping the borrowing cost as low as possible is the priority
- Business cash flow gap, medical emergency, or a large planned purchase with a defined repayment timeline
When Should You Choose a Personal Loan?
- No mutual fund investments available to pledge
- Loan amount needed is larger than the portfolio can support at current LTV ratios
- A fixed predictable monthly repayment is strongly preferred over a flexible structure
- Repayment tenure is longer and a structured calendar is needed from day one
Tax Implications
This section gets ignored far too often, and it shouldn’t.
Redeeming mutual funds to raise cash is a taxable event. Equity funds sold within one year of purchase attract short-term capital gains tax at 20%. Gains above Rs. 1.25 lakh on equity funds held beyond a year attract long-term capital gains at 12.5%. Debt fund gains get added to total income and taxed at the applicable slab rate—which for many investors means 30%.
Pledging the same funds instead of selling them triggers none of this. No redemption, no tax. The corpus stays intact, gains keep compounding, and the liquidity need is met through the loan.
Personal loans carry no tax benefit for personal use. For business-related borrowing, interest paid may qualify as a deductible expense. That is the only scenario where tax plays any role.
Hidden Costs and Risks
Most people compare loans on the headline interest rate. That comparison is incomplete.
With LAMF, the things to watch:
- Processing fees — flat or percentage-based depending on lender, sometimes waived on digital platforms
- Margin call exposure — equity-heavy pledges during volatile markets carry genuine risk here
- Daily interest accrual — every extra day the loan runs adds to the total. Early repayment saves more than it looks
With personal loans, check every line before signing:
- Processing fee — typically 1% to 3% of loan amount, collected upfront
- Prepayment charges — 2% to 5% of outstanding principal if closing early
- Late payment penalties — these compound faster than most borrowers anticipate
Total cost of borrowing — not just the rate — is the number that should drive the decision.
Common Mistakes to Avoid in 2026–27
- Drawing the full sanctioned limit when only a portion of it was actually needed
- Pledging equity funds when debt funds are sitting in the same portfolio — debt NAVs are far more stable under market stress
- Comparing loan products purely on interest rate while ignoring processing fees, penalties, and prepayment terms
- Starting a loan without a repayment timeline already decided
- Underestimating how quickly a margin call arrives on equity-backed loans when markets fall sharply and consistently
2026–27 Trends: Why People Are Preferring LAMF Over Personal Loans
The shift has been gradual, but it is clearly happening.
Digital LAMF platforms now take care of the whole procedure from KYC and pledging to approval and disbursal—within a single working day. Two years ago, LAMF required branch visits and manual verification. That friction has been almost entirely removed. The processing speed advantage personal loans once held is effectively gone.
Retail mutual fund participation in India crossed 10 crore unique investors in recent years. More households now hold portfolios large enough to borrow against. The eligible base for LAMF has expanded dramatically, and awareness is catching up.
AI-based credit underwriting has also changed how lenders assess LAMF applications. Risk is modelled faster, approvals are more consistent, and pricing has become more competitive as more digital NBFCs enter the space.
The rate environment in 2026–27 has also widened the gap between secured and unsecured lending. Borrowing at 10% instead of 18% was always mathematically better. Right now, with rates where they are, it is an even more compelling case.
Conclusion
One question settles this: are mutual fund investments available to pledge?
If yes—a Loan Against Mutual Funds is the stronger choice on almost every measure. The rate is lower, there are no capital gains taxes from redemption, the portfolio keeps compounding, and the process is as fast as any personal loan in 2026–27.
If not—a personal loan is the practical option. Accessible, fast, structured. Just go in knowing the full cost picture—total interest, processing fees, and prepayment terms—not just the monthly EMI.
For a fully digital Loan Against Mutual Funds experience, Bulwark Capital is a strong option. As an RBI-licensed NBFC, we offer:
- Loans from Rs. 5,000 to Rs. 10,00,000
- Interest rates starting @9%
- Completely digital mode—zero paperwork, zero branch visits
- Disbursed on the same day in most cases
Visit bulwarkcapital.in to check mutual fund loan eligibility today.
FAQs
Yes — units remain in the account throughout. Only a lien is marked. The risk worth monitoring is a margin call during a sharp market correction. Keeping the loan comfortably below maximum LTV and preferring debt funds for pledging reduces this considerably.
Loan Against Mutual Funds wins on cost in almost every scenario. On Rs. 5 lakh over 12 months, the gap between 10% and 18% is approximately Rs. 22,000 in interest. Over 24 months, that gap grows further.
Only if repayment defaults simultaneously with a NAV drop that breaches the LTV threshold. At that point, the lender may redeem pledged units to recover outstanding dues. Regular repayment makes this scenario irrelevant.
It registers as a liability on the credit report. On-time repayment strengthens the score over time. Missed payments hurt it — same as any loan product.
A basic check is part of the process, but portfolio value is the real deciding factor. Borrowers with moderate credit histories regularly get approved on the strength of their fund holdings alone.
A NAV drop significant enough to push the outstanding loan above the permitted LTV triggers a margin call. Partial repayment or additional collateral is required. Pledging debt funds and staying well below the maximum LTV from the start provides meaningful protection against this.
