In 2026, the eligibility of a mutual fund for a Loan Against Mutual Funds (LAMF) is strictly governed by four data-driven benchmarks: CAMS/KFintech registration, asset stability (LTV), lock-in status, and portfolio valuation. Statistically, over 95% of all digital loans are processed for funds registered with CAMS or KFintech, as these providers offer the real-time API connectivity required for instant lien marking.
Lenders apply a "haircut" based on the fund type, with Debt Mutual Funds qualifying for a high 85% – 90% LTV, while Equity Funds are capped at 50% due to market volatility. Furthermore, funds like ELSS are ineligible during their 3-year lock-in period, and most 2026 platforms require a minimum eligible portfolio value of ₹50,000 to trigger a loan starting at ₹25,000.
For many investors, the dilemma of needing urgent cash while having a robust investment portfolio often leads to the premature redemption of units. This is where lending against securities emerges as a sophisticated financial tool, allowing you to access capital without sacrificing your long-term wealth goals.
A loan against mutual funds (LAMF) operates as an overdraft or a demand loan, where your holdings act as collateral. However, not every unit in your portfolio is treated equally by financial institutions.
Eligibility is governed by a complex interplay of fund volatility, asset quality, and regulatory compliance. Understanding these nuances is essential for any investor looking to leverage their portfolio effectively.
Core Principles of Mutual Fund Eligibility for LAMF
When you apply for a loan against mutual funds, the lender evaluates your portfolio based on risk mitigation. Since the mutual fund units remain in your name while being lien-marked, the lender must ensure that the underlying assets are stable enough to cover the loan amount even during market downturns.
The eligibility of a fund is primarily determined by its categorization and the reputation of the Asset Management Company (AMC). Most lenders maintain an "Approved List" of schemes that they are willing to accept as collateral.
This list is updated periodically to reflect current market conditions and fund performance.
Key Factors Determining Scheme Approval
Factor | Description | Impact on Eligibility |
Asset Class | Whether the fund is Equity, Debt, or Hybrid. | High (Debt is generally more eligible). |
AMC Reputation | The track record and AUM of the fund house. | Major AMCs are preferred by lenders. |
Market Volatility | The standard deviation and beta of the fund. | High volatility reduces eligibility. |
Lock-in Period | Specific schemes like ELSS have restricted access. | Units under lock-in are ineligible. |
Technical Eligibility: Equity vs Debt Funds
The distinction between equity and debt is the most significant hurdle in the lending against securities process. Lenders view these asset classes through different lenses of risk.
Equity funds, being linked to the stock market, are prone to higher fluctuations, leading lenders to be more conservative with their approval and the Loan-to-Value (LTV) ratio.
Debt funds are often viewed as "reliable collateral" because of their lower price sensitivity compared to equity.
When you opt for a loan against mutual funds, you will find that debt instruments such as Liquid Funds, Gilt Funds, and Corporate Bond Funds are almost always on the approved list of every major NBFC and bank in India.
Comparison of Eligibility Parameters
Equity Mutual Funds: Usually require the fund to be a diversified large-cap or multi-cap fund. Sectoral or thematic funds (like Pharma or Tech-only funds) are frequently excluded from eligibility lists due to their concentrated risk.
Debt Mutual Funds: Eligibility is high across the board, provided the credit rating of the underlying bonds is superior.
Hybrid Funds: These are eligible based on their equity-to-debt ratio. Aggressive hybrid funds are treated similarly to equity, while conservative hybrids are treated more like debt.
Regulatory and Operational Constraints on Eligibility
Beyond the nature of the fund, several operational benchmarks must be met for a loan against mutual funds to be sanctioned. One of the most critical aspects is the "lien marking" process. For a fund to be eligible, it must be held in a format that allows the lender to legally restrict its sale until the loan is repaid.
Modern lending against securities platforms use digital integrations with RTAs (Registrar and Transfer Agents) like CAMS and KFintech. If your mutual fund units are registered with these agencies, the eligibility for an instant digital loan increases significantly.
Mandatory Operational Requirements
KYC Compliance: The investor must be fully KYC-compliant. Without a "KYC Registered" status, no lender can initiate the lien-marking process.
Single Ownership: Most digital loans against mutual fund products require the units to be held in a single name. Joint holdings often require physical documentation and consent from all holders, making them ineligible for "instant" digital products.
Minimum Portfolio Value: Most lenders require a minimum valuation, often starting at ₹50,000 to ₹1,00,000, to make the administrative cost of the loan viable.
Statement of Account (SoA) vs Demat: While both are eligible, the process for pledging units in SoA form is different from that held in a Demat account. Ensure your lender supports your specific holding format.
Why Certain Funds are Explicitly Ineligible
It is a common misconception that all investments can be used for lending against securities. In reality, several popular fund types are rejected during the eligibility check. The most prominent among these is the Equity Linked Savings Scheme (ELSS).
Since ELSS funds have a mandatory three-year lock-in period mandated by the Income Tax Act, they cannot be pledged as collateral until the lock-in period has expired.
Similarly, funds dedicated to minors or those already under a lien for another liability are strictly ineligible for a new loan against mutual funds.
Common Ineligibility Triggers
When seeking lending against securities, certain fund characteristics act as immediate red flags for financial institutions. Understanding these triggers helps you curate a portfolio that is ready for a loan against mutual funds whenever a liquidity need arises.
ELSS (During Lock-in): Equity Linked Savings Schemes are designed for tax saving, which comes with a mandatory 36-month lock-in period. During this window, the units are legally frozen and cannot be transferred or lien-marked. Until this period expires, they are completely ineligible for a loan against mutual funds.
Close-ended Schemes: Lenders prioritize liquidity. Since close-ended funds do not allow for daily entry or exit and only provide redemption upon maturity, they are often excluded from lending against securities. Lenders need the ability to liquidate assets quickly in case of a default.
Small-cap and Sectoral Funds: These categories are prone to high "drawdown" or extreme volatility. Because the market value can drop 20% to 30% in a short span, they pose a high risk to the lender’s margin requirements. Many institutions either exclude them or offer a significantly lower LTV.
International Funds: Funds investing in overseas markets introduce currency fluctuation risks and geopolitical variables. Due to these complexities, many Indian lenders prefer to stick to domestic assets for lending against securities to maintain stable collateral valuations.
Financial Metrics: LTV and Margin Requirements
When participating in lending against securities, you must understand the concept of a haircut. A haircut is the percentage of the fund value that the lender keeps as a buffer. For instance, if a fund has a 50% LTV, the "haircut" is 50%. This metric is a direct reflection of how "eligible" or "safe" the lender considers the fund.
A higher LTV is granted to funds that show low volatility. If you are taking a loan against mutual funds secured by liquid debt funds, you might get an LTV as high as 80-90%. In contrast, equity funds usually hover around the 45-50% mark.
Understanding the Eligibility Math
Asset Category | Typical LTV | Minimum Value Required |
Liquid/Debt Funds | 80% - 90% | ₹25,000 |
Diversified Equity | 45% - 50% | ₹50,000 |
Gold ETFs/Funds | 70% - 75% | ₹50,000 |
The Role of the AMC and Lender-Approved Funds
The approval of a scheme is heavily influenced by the manufacturer. Lenders maintain a specific list of lender-approved funds to mitigate credit and liquidity risks. An AMC with a high AUM (Assets Under Management) and a long history of stability is more likely to have its schemes included in the lending against securities approved list. Smaller, newer AMCs might find only their most popular schemes listed, or in some cases, might be excluded entirely until they build a significant track record.
When applying for a loan against mutual funds, you should check if your AMC is on the whitelist of the specific bank or NBFC. Most top-tier lenders approve schemes from the top 20-25 AMCs in India, covering over 95% of the total industry AUM.
Criteria for Inclusion in Approved Lists
AUM Size: Larger funds are more liquid and easier for the lender to liquidate if a default occurs.
Systemic Importance: Lenders prefer fund houses that are well-regulated and have robust risk management frameworks.
Data Integration: AMCs that provide seamless data feeds to CAMS/KFintech are preferred for digital loan against mutual funds journeys.
Mastering the MF Eligibility Criteria
To ensure your application is successful, you must satisfy the multifaceted MF eligibility criteria set by the financial institution. This criterion isn't just about the funds you own; it also involves your personal profile and the legal standing of the units. For example, units must be "unencumbered," meaning they shouldn't already be pledged for another loan or have any legal disputes attached to them.
Moreover, the MF eligibility criteria often include age restrictions (typically 21 to 70 years) and residency status. While the loan is secured, a decent credit history can often lead to better interest rates and higher credit limits.
Ownership: Units must be held in a single name or have a Clear Marketable Title.
RTA Sync: The units must be visible in the consolidated account statement provided by CAMS or KFintech.
Nature of Units: Only open-ended units are typically eligible; closed-ended units often face rejection.
Portfolio Diversification: Lenders may reject portfolios that are 100% invested in a single high-risk sectoral fund.
Strategic Advantage of Using Eligible Funds for LAMF
Choosing an eligible fund for lending against securities is not just about getting the loan; it is about financial efficiency. By using your mutual funds as collateral, you ensure that your SIPs continue, your power of compounding remains uninterrupted, and you don't trigger capital gains tax, which would have occurred if you had sold the units instead.
A loan against mutual funds is essentially a "smart credit" line. You only pay interest on the amount you actually withdraw and use, not the entire sanctioned limit. This makes it an ideal tool for managing short-term cash flow gaps or emergency expenses.
Conclusion: Maximizing Your Portfolio’s Potential
Navigating the world of lending against securities requires a clear understanding of what makes your portfolio "bankable." By focusing on high-quality, lender-approved funds and meeting the requisite MF eligibility criteria, you ensure that your investments are always ready to provide liquidity when you need it most. A loan against mutual funds is a powerful ally in wealth management, provided you stay informed about the eligibility criteria and margin requirements.
If you are looking to unlock the value of your investments without selling them, discvr.ai offers a seamless, digital-first experience for lending against securities. Our platform connects you with top lenders, ensuring you get the best LTV and interest rates for your loan against mutual funds. Discover your eligibility today and keep your wealth-building journey on track.