Loan Against Securities: Borrow Against Your Investments Without Selling Them
Borrow up to 50–80% of your mutual fund or stock value without selling them. Learn how Loan Against Securities works, its costs, and when it makes sense.
You’ve spent three years building a solid mutual fund portfolio. It’s sitting at ₹8 lakhs, growing quietly. Then life happens — a medical emergency, a home renovation, or maybe a business opportunity that needs quick cash. The obvious move feels like selling. But there’s a better one.
A Loan Against Securities (LAS) lets you pledge your investments — mutual funds, stocks, bonds — as collateral and borrow against them. You keep your portfolio intact, your investments keep compounding, and you get cash in your account, often within 24–48 hours.
How It Actually Works
Think of it like a gold loan, but for your financial portfolio instead of your jewellery.
You go to a bank or a lending platform, pledge your mutual fund units or shares, and they give you a credit line — a pre-approved amount you can draw from as needed. You only pay interest on what you actually use, not the entire sanctioned amount.
Here’s a real example. Say you’re a 32-year-old software engineer in Pune with ₹10 lakhs in a mix of equity mutual funds and blue-chip stocks. A bank like HDFC or SBI will typically offer you a loan of 50–80% of your portfolio value — so anywhere between ₹5 lakhs and ₹8 lakhs depending on what you’ve pledged. Equity funds generally get a 50% limit; debt funds can go up to 80%.
The interest rate on LAS typically runs between 9% and 13% per year, depending on the lender and the type of security. Compare that to a personal loan at 14–18%, and the math starts looking pretty attractive.
The Part Most People Miss: Your Money Keeps Growing
This is the actual reason LAS makes sense over simply selling your investments.
If you sell ₹5 lakhs worth of equity mutual funds that have been compounding at 12% CAGR (Compound Annual Growth Rate — meaning your money grows by 12% every year on average), you lose that future growth permanently. Over 5 years, ₹5 lakhs at 12% CAGR becomes roughly ₹8.8 lakhs. You’ve given up ₹3.8 lakhs in potential gains.
With LAS, you borrow ₹5 lakhs, pay say 10% interest on it for one year (₹50,000 in interest), your portfolio continues to grow, and once you repay the loan, everything is back to normal. You’ve paid ₹50,000 to protect ₹3.8 lakhs in future wealth. That’s a trade worth considering.
There’s also a tax angle. Selling mutual fund units triggers capital gains tax — up to 12.5% on long-term equity gains above ₹1.25 lakhs. Taking a loan is not a taxable event. You borrow, you repay, no tax notice.
Where to Actually Get This Done
A few options worth knowing about in India:
| Lender | Type | Typical Interest Rate | Minimum Portfolio Required |
|---|---|---|---|
| HDFC Bank | Bank | 9.5% – 11% | ₹1 lakh |
| SBI | Bank | 9% – 10.5% | ₹50,000 |
| Bajaj Finserv | NBFC | 10% – 13% | ₹25,000 |
| Mirae Asset Financial Services | NBFC | 10.5% – 12% | ₹50,000 |
Zerodha users can pledge shares directly through the platform to meet margin requirements — which is a slightly different use case but uses the same principle. For mutual funds, platforms like Groww have also started integrating LAS options within their app.
The process is largely digital now. Most banks let you pledge your demat holdings online, get approval within a day, and draw funds as needed.
One thing to be careful about: if your portfolio value drops significantly, the lender can issue a margin call — meaning they’ll ask you to either add more securities or repay part of the loan. This happened to a lot of investors during the March 2020 crash. Keep a buffer and don’t borrow the maximum they offer.
The Direct Answer: Should You Use LAS?
Yes — with one condition. Use it for short-term cash needs (under 2–3 years) when you have a clear repayment plan.
If you’re a 28-year-old in Chennai earning ₹85,000 a month and you need ₹3 lakhs for a home down payment top-up, pledging your ₹6 lakh mutual fund portfolio makes more sense than selling it or taking a personal loan. You borrow ₹3 lakhs at 10%, repay ₹25,000 a month for 13 months, total interest cost is roughly ₹19,000 — and your portfolio never stopped growing.
Don’t use LAS to fund lifestyle expenses or speculative investments. That’s how a smart tool becomes a debt trap. Use it as a bridge, not a lifestyle subsidy.
Frequently Asked Questions
Can I take a loan against my SIP mutual funds?
Yes. You can pledge mutual fund units accumulated through SIPs, as long as the units are in your demat account or the AMC supports pledging. The loan amount depends on the type of fund — equity funds usually give you 50% of the value, while debt funds can go up to 80%.
Does pledging my mutual funds affect my SIP contributions?
No. Your ongoing SIPs continue normally. The pledge only applies to existing units, not new ones being added every month.
What happens if the market falls and my portfolio value drops?
If your pledged portfolio falls below a certain threshold, the lender will issue a margin call — asking you to pledge more securities or repay part of the loan. To avoid this, don’t borrow more than 40–50% of your portfolio value even if the lender offers more.
Is interest paid on LAS tax deductible?
Only if you can show the borrowed money was used for a business or investment purpose. For personal use — medical bills, home renovation — the interest is not deductible under the Income Tax Act.
How is LAS different from a personal loan?
A personal loan is unsecured — the bank takes on the risk, so rates are higher (14–18%). LAS is secured against your portfolio, so rates are lower (9–13%) and the approval is faster. The tradeoff is that your investments are at risk if you default.