A loan against mutual fund NAV is calculated using a mark-to-market approach where the latest NAV is multiplied by the number of units held and adjusted using lender-defined Loan-to-Value (LTV) ratios. Since NAV fluctuates daily, borrowing eligibility changes with market movements. Equity mutual funds generally offer lower LTVs of 45–50 percent due to higher volatility, while debt and liquid funds may allow 75–85 percent because of their relative stability. Hybrid funds fall between these ranges depending on equity exposure. NAV volatility introduces margin call risk. If the NAV falls sharply, lenders may ask borrowers to restore the LTV by repaying part of the loan or pledging additional units.
To mitigate this risk, borrowers are advised to use only 60–70 percent of their maximum eligible limit. Most NAV-based loans are structured as overdraft facilities. Interest is charged only on the utilized amount, not the sanctioned limit. As NAV increases, many lenders allow credit limit enhancement without fresh documentation. Units under statutory lock-ins, such as ELSS schemes, remain ineligible until the lock-in period ends, regardless of NAV value.
Eligibility is determined in real time through RTA integration with CAMS or KFintech. Compared to crypto-backed loans, mutual fund NAV-based lending offers regulated liquidation, predictable collateral behavior, and significantly lower volatility, making it more suitable for disciplined liquidity planning.