Need money but do not want to sell your mutual funds or shares? Many banks and NBFCs (non-banking financial companies) will lend against them. You keep your investments, and the lender holds them as security. The rate may be lower than on an unsecured personal loan, but compare offers. But if markets fall, you may be asked to pay or pledge more at short notice. This guide explains the rules, the maths and the risks.
What is a loan against mutual funds or shares?
You pledge your units or shares to the lender. A pledge, or lien, is a hold: you still own the investment, but you cannot sell or redeem it freely until the loan is repaid or the lien is released. The lender can sell it if you do not repay as agreed.
Lenders offer this in two common forms:
- Overdraft-style limit: you get a limit and draw what you need. Interest is usually charged only on the amount used, for the days used.
- Term loan: a fixed amount repaid over a set period.
Check which one you are being offered in the sanction letter and, for term loans, the Key Facts Statement (KFS). The KFS is the short summary of rate and charges that RBI requires lenders to give for retail and MSME term loans.
How much can you borrow against your investments?
The amount you get is decided by the loan-to-value (LTV) ratio: the loan as a percentage of the value of what you pledge. For banks, RBI's Commercial Banks – Credit Facilities Amendment Directions, 2026 (13 February 2026, in force from 1 April 2026) set these ceilings for loans to individuals:
| What you pledge | Maximum LTV (banks) |
|---|---|
| Listed shares and listed convertible debt securities | 60% |
| Mutual funds other than debt funds, ETF units, REIT and InvIT units | 75% |
| Debt mutual funds | 85% |
| Government securities | As per the bank's policy |
These are ceilings. A bank can set a lower LTV in its own policy. Other points from the same Directions:
- Value used: shares and fund units are valued at the lower of the average daily closing price or NAV for the last six months, or the previous trading day's close. So after a sharp rise, you may get less than today's value suggests.
- Amount cap: loans against shares and non-debt funds are capped at ₹1 crore per individual. Loans against government securities, listed debt securities and debt fund units follow each bank's policy.
- Not accepted: securities under any lock-in, and partly paid shares. Gold, silver and other commodity ETFs are not counted as ETFs under these rules, so the 75% ceiling does not cover them; ask the bank whether it lends against them at all.
Existing loans can continue until maturity; fresh and renewed loans must follow the new rules. NBFCs follow separate RBI rules, so their limits can differ. Ask the lender for its LTV in writing.
What does a worked example look like?
Say you hold equity mutual funds worth ₹10,00,000 by the lender's valuation. At the 75% ceiling, a bank could lend up to ₹7,50,000. You borrow ₹5,00,000, so your LTV is 50%.
At an example rate of 10.5% a year, interest on the full ₹5,00,000 is about ₹4,375 a month, or ₹52,500 over a year if you draw the whole amount for the full year. On an overdraft, you pay less if you repay early or draw less.
What is a margin call, and when does it happen?
Your pledged investments move with the market, but your loan does not. If their value falls, the LTV rises. When it crosses the lender's limit, the lender asks you to fix the gap. This is often called a margin call. For banks, RBI requires LTV to be monitored on an ongoing basis and breaches to be fixed immediately, and in no case later than seven working days.
Using the same ₹5,00,000 loan against ₹10,00,000 of funds, with a 75% LTV limit:
| Market fall | Value of pledged funds | Your LTV | Within 75%? |
|---|---|---|---|
| 20% | ₹8,00,000 | 62.5% | Yes |
| 30% | ₹7,00,000 | 71.4% | Yes |
| 40% | ₹6,00,000 | 83.3% | No |
In this example, the funds can fall by about one-third (33.3%) before the limit is crossed. After a 40% fall, you would need to do one of these:
- Pledge more: about ₹66,667 of extra eligible investments, to bring the pledged value up to ₹6,66,667.
- Repay part of the loan: ₹50,000, bringing it down to ₹4,50,000, which is 75% of ₹6,00,000.
If you cannot do either in time, your loan agreement will usually let the lender sell some of your pledged investments, often at a low price. Borrowing well below the maximum LTV gives you a bigger cushion.
What interest rate and charges should you compare?
Rates vary by lender, by what you pledge and by whether the loan is floating or fixed. Before you sign, ask for:
- The interest rate, its benchmark and reset dates if it is floating.
- Processing fee, pledge or lien-marking charges, renewal fees and any annual charges, plus GST.
- The APR (annual percentage rate), shown in the KFS where one is given. RBI requires it to include all charges the lender levies, so it lets you compare offers on one number.
- The LTV, the margin call process, how you will be told and how many days you get.
Can you repay early without a charge?
Under RBI's Pre-payment Charges on Loans Directions, 2025, floating-rate loans to individuals for non-business purposes, sanctioned or renewed on or after 1 January 2026, cannot carry pre-payment charges. For overdraft or cash credit facilities, no pre-payment charge applies if you tell the lender, within the time set in the agreement, that you do not want to renew, and the facility is closed on the due date. Fixed-rate loans follow the lender's disclosed policy. Check your KFS.
When might it make sense, and when not?
It may suit you when:
- You need money for a short time and expect to repay soon.
- You want to stay invested for the long term rather than sell.
- The APR is lower than the other options you have, such as a personal loan.
Be careful when:
- You may not have spare cash or investments to meet a margin call.
- You plan to use the money to buy more shares. Borrowing to invest can magnify losses.
- You need the money for many years. Market falls over a long period make margin calls more likely.
Do it in 10 minutes, free
Use the LowerMyEMI compare offers calculator to put a loan against your investments next to a personal loan or top-up offer, including fees, and export the result to Excel or PDF.
If you already have a costly loan, LowerMyEMI can also write one email per lender asking for a lower rate, which you send from your own email. We are not a lender and never promise a rate; each lender decides.