3 Major Risks of Loan Against Mutual Funds

Loans Against Mutual Funds (LAMF) offer liquidity but come with notable risks. First, market volatility can erode NAVs by 20–30%, triggering margin calls. If borrowers can’t add collateral or repay, lenders may forcibly liquidate holdings at depressed prices. Second, interest costs can outweigh fund returns—borrowing at 11% while earning 8% results in net loss. Third, easy credit access can lead to overleveraging. Experts advise maintaining a 10–15% safety buffer above LTV and borrowing conservatively to avoid repayment stress.