Lenders follow RBI guidelines when it comes to providing loans against securities, which also includes loans against mutual funds.
Given the nature of volatility in the equity and equity-related products, Equity Mutual Funds can offer a loan-to-value (LTV) of up to 50% only. This means, that if my equity mutual fund portfolio is valued today at Rs.10 lacs, the maximum loan you can avail of is up to Rs.5 lac only. Besides this LTV, there is an overall cap of Rs.20 lac per borrower is fixed for banks. This cap does not apply to NBFCs. Get your Loan Against Mutual Fund Loan Eligibility Amount.
However, when it comes to fixed income or debt or debt-related products, this loan-to-value can go up to 80% i.e. on your Rs.10lac of Debt Mutual Fund Equity-based loans up to Rs.8 lacs funds like a cap on equity mutual fund of Rs.20 lac per borrow by a bank, there is no such cap on debt mutual funds.
It is advisable to keep the borrowing limit i.e. LTV is at least five percentage points lower than the RBI guidelines. It helps during the volatile markets and provides a cushion against day-to-day market movements. It is important to note here that at any point in time if the LTV breaches the regulatory norms, the borrower is required to make good either by way of repayment of principal or providing extra security to bring back the LTV below the regulatory norms.
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