Every month your SIP puts money into a mutual fund. Over time, that money grows. What most people do not know is — you can borrow against that money without withdrawing it.
That is what a loan against SIP and a loan against mutual funds mean. Both are the same thing. Your SIP builds the investment. That investment gets you the loan. Your money stays right where it is.
This guide tells you how it works, who can use it, and what to keep in mind.
What Is Loan Against SIP?
Here is a misconception worth clearing up immediately. A loan against SIP is not a separate financial product. There is no special category called “SIP loan” that lenders offer.
What it actually means: when you invest through a systematic investment plan (SIP), you accumulate mutual fund units every month. Over time, those units build into a corpus. A loan on SIP simply refers to borrowing against those accumulated mutual fund units — the ones built through your SIP contributions.
Run a ₹5,000 SIP for four years and the units sitting in your folio could easily be worth ₹3–4 lakh. That corpus does not have to stay idle — it can be pledged to get a loan. The SIP carries on. The units go nowhere. A lien gets marked, and that is about it.
Loan against SIP = loan against the mutual fund units accumulated via SIP.
The term is used for convenience, not because it is a distinct product.
What Is Loan Against Mutual Funds?
With a loan against mutual funds, your units become the collateral. You approach a bank or NBFC, they mark a lien, and the loan gets disbursed. You cannot sell or move those units until you repay the loan — but they stay in your account and keep growing as usual.
Types of funds typically eligible:
- Equity mutual funds — actively managed schemes, index funds, ELSS (with some conditions)
- Debt mutual funds — liquid funds, short duration funds, corporate bond funds
Interest rates are lower because the loan is secured. Processing is faster because the collateral is digital and easily verifiable. For investors holding any meaningful portfolio, loan against mutual funds in India is one of the most cost-efficient ways to access short-term funds.
Is a Loan Against SIP Just a Type of Loan Against Mutual Funds?
Yes, directly and simply.
When you invest via SIP, the output is mutual fund units. Those units are what you pledge when you borrow. The route through which you accumulated them—lump sum or SIP—is irrelevant to the lender.
Think of it this way: you deposit money into a savings account every month via standing instruction. If you borrow against that balance, nobody calls it a “standing instruction loan.” The same logic applies here. The units are mutual fund units. The loan is a loan against mutual funds. SIP is just a popular shorthand.
Can SIP Investments Be Used for Loan Against Mutual Funds?
Yes, with a few basic conditions.
Units need to be held in demat form or in a folio compatible with the lender’s platform. Most lenders work with major AMCs and can mark a lien electronically without physical paperwork.
Loan-to-value ratios by fund type:
- Equity mutual funds: typically 50–60% of current NAV
- Debt mutual funds: typically 70–80% of current NAV
So if your SIP portfolio is worth ₹5 lakh in equity funds, expect a loan of ₹2.5–3 lakh. Debt fund portfolios yield slightly higher borrowing limits given their lower volatility. Lenders include major public and private sector banks as well as specialized NBFCs focused on loans against securities.
How to Use Your SIP Investments to Get a Loan Against Mutual Funds
Honestly, most people are surprised by how straightforward this is—particularly if you go through a digital lender.
- Pick a lender: Look at what interest rate they offer, which AMCs they support, and what loan-to-value ratio you can expect. These three factors vary more than people realize.
- Get your paperwork in order: PAN, Aadhaar, and your mutual fund account details—that is typically all you need to apply online.
- Mark the lien on your units: This happens digitally via CAMS or KFintech. You authorize it through an OTP. No courier, no branch visit, no physical paperwork is involved.
- Receive the funds: After lien confirmation, the loan hits your account—most lenders turn this around in a few hours or within a day or two.
Your SIP keeps running the whole time. Whatever new units your monthly installment generates stay separate from the pledged ones unless you specifically add them.
Key Benefits of Loan Against Mutual Funds
- Your investment stays right where it is: No selling, no capital gains tax event, no exit load eating into your returns—the units remain in your folio throughout
- Returns keep compounding: Units continue growing in value even while pledged
- Lower interest rates: Typically 9–13%, significantly lower than personal loans at 14–24%
- Quick access to funds: Digital lien marking has cut processing time dramatically
- Flexible repayment: Many lenders offer overdraft-style facilities—pay interest only on what you use
Risks and Things to Consider
Market volatility: If equity NAVs drop sharply, lenders may issue a margin call—asking you to pledge additional units or repay part of the loan.
The numbers need to make sense: Say your loan is running at 11% annually and your fund is delivering 10%. You are effectively losing money on that gap. This product earns its keep when used for short- or medium-term needs—not as a long-term leverage strategy.
Do not borrow more than you actually need: The ease of the process can be misleading. Because it is quick and relatively painless to get the funds, it is easy to justify borrowing more. Set a number, stick to it, and know before you apply how and when you will repay.
Conclusion
A loan against SIP or loan against mutual funds rewards investors who have built something worth protecting. You do not have to break what you have built every time cash is needed.
The units accumulated through years of disciplined investing can work in two directions simultaneously — growing in value and providing liquidity when required.
The key is working with a lender who makes the process genuinely frictionless.
Bulwark Capital specialises in fast, hassle-free loans against mutual fund holdings — structured so your long-term investment trajectory stays completely undisturbed. If you have a mutual fund portfolio and a short-term liquidity need, visit bulwarkcapital.in before you redeem a single unit.
