When money is needed quickly, most investors in India think of two choices: take a personal loan or sell some investments. Selling means giving up future growth and possibly paying tax on the gains. A personal loan means a high interest rate and a credit check.
There is a third choice that many people overlook. A loan against securities lets you pledge the shares, mutual funds, bonds or ETFs you already own and borrow against their value. The assets stay in your name, keep earning returns, and you pay interest only on the amount you use.
What is a loan against securities?
It is a secured credit facility, often shortened to LAS. You offer financial assets as collateral, the lender marks a lien on them, and you get a credit limit linked to their market value.
Nothing is sold and ownership does not change. The pledged assets simply cannot be redeemed or transferred until the lien is released.
Most LAS products work like an overdraft. You draw what you need, repay when you can, and the limit refills as you repay.
Which securities can you pledge?
The list is wider than most investors expect:
- Shares listed on NSE or BSE, from the lender's approved list
- Equity and debt mutual funds
- ETFs, including index and gold ETFs
- Government securities and RBI bonds
- Non-convertible debentures and sovereign gold bonds, with select lenders
When the collateral is mainly shares, the product is often called a loan against shares. When it is mutual fund units, it is called a loan against mutual funds.
How much can you borrow?
The amount depends on the loan-to-value (LTV) ratio, which is the share of your asset's market value a lender will advance. Safer assets get a higher LTV.
|
Asset pledged |
Typical LTV |
On a Rs 10 lakh holding |
|---|---|---|
|
Equity mutual funds |
45% to 50% |
Rs 4.5 lakh to Rs 5 lakh |
|
Liquid and debt mutual funds |
80% to 85% |
Rs 8 lakh to Rs 8.5 lakh |
|
Listed equity shares |
50% to 60% |
Rs 5 lakh to Rs 6 lakh |
|
ETFs and index funds |
50% to 60% |
Rs 5 lakh to Rs 6 lakh |
|
Listed debt securities |
75% to 85%, by rating |
Rs 7.5 lakh to Rs 8.5 lakh |
The RBI sets upper limits for banks, and each lender chooses its own level within them. From 1 July 2026, a bank can also lend one individual no more than Rs 1 crore against eligible securities across the banking system. That cap does not apply to NBFCs, which is why some of them sanction larger limits.
How the process works
- Check your limit. Share your PAN and mobile number so the lender can see which of your holdings are eligible.
- Pledge the assets. Mutual fund units are lien-marked through the registrar (CAMS or KFintech). Shares are pledged in your demat account through CDSL or NSDL.
- Get your credit limit. Once the pledge is confirmed, the limit is activated.
- Withdraw and repay. Draw money as needed, pay interest on the amount used, and repay at your own pace.
- Release the lien. After repayment, the pledge is removed and the assets are free again.
Pledging mutual funds is usually fully digital and can be done in minutes. Pledging shares often takes longer because it runs through your broker and may involve paperwork.
What does it cost?
In 2026, interest rates on loans against securities start at about 10% p.a. Loans backed by mutual funds sit at the lower end, banks generally charge 10.5% to 14% on equity-backed loans, and NBFCs charge roughly 10.5% to 16% on stock-backed ones.
Beyond the rate, check the processing fee, any charge for unpledging, and whether there is a foreclosure charge. These differ a lot between lenders.
Loan against securities vs personal loan
|
Factor |
Personal loan |
Loan against securities |
|---|---|---|
|
Collateral |
None |
Shares, mutual funds, bonds, ETFs |
|
Interest rate (p.a.) |
About 14% to 30% |
About 10% to 16% |
|
Interest charged on |
The full loan amount |
Only the amount withdrawn |
|
Credit score |
Central to approval |
Matters less; often no minimum for fund-backed loans |
|
Repayment |
Fixed EMIs |
Flexible, with interest paid monthly |
|
Main risk |
High cost |
Margin call if markets fall |
Who should consider it?
- Investors with a short-term cash need who expect to repay within months, not years.
- Business owners who need working capital without disturbing long-term investments.
- Anyone facing a large one-time expense, such as a medical bill or a property down payment, who does not want to redeem at a bad time.
Applicants generally need to be Indian residents above 18 with a valid PAN, completed KYC and a portfolio above the lender's minimum value.
The risks: margin calls and forced selling
The main risk is a margin call. If your pledged assets fall in value and the loan exceeds the allowed LTV, the lender will ask you to pledge more assets or repay part of the loan.
If you cannot do either in the given window, often about 7 working days, the lender can sell your securities to cover the gap. That can lock in losses at the worst moment.
Single stocks carry the most risk here, since one bad session can breach the limit. Mutual fund NAVs usually move more gradually. In both cases, borrowing well below your maximum limit is the simplest protection.
Frequently asked questions
Do I lose ownership of my securities? No. They stay in your name and keep earning returns, dividends included. They are only locked until the lien is released.
How is it different from a margin loan? A margin loan from a broker is meant for buying more securities. A loan against securities gives you cash that you can use for personal or business needs.
How long does it take? A mutual fund-backed loan can be set up online the same day. A share-backed loan can take a few days, depending on the broker and lender.
The bottom line
A loan against securities turns investments into ready cash without selling them. It usually costs less than a personal loan and gives more freedom in repayment. Keep your borrowing modest, watch your limit when markets fall, and it can be one of the more sensible ways to handle a short-term need.