One of the key advantages of taking a loan against mutual funds is the ability to continue earning returns on your investment while addressing immediate cash requirements. Mutual fund units, particularly in equity or hybrid funds, have the potential for long-term appreciation. Instead of selling units when you need funds and possibly incurring capital gains taxes or missing out on future growth, you can use them as security to obtain a loan. The process is generally quick and seamless, with loan amounts based on the current market value of the pledged units.

The interest rates on loans against mutual funds are typically lower than those of personal loans or credit cards, making this an affordable borrowing option. In India, many lenders offer competitive interest rates, depending on the type of mutual funds being pledged. Generally, debt funds attract higher loan amounts compared to equity funds due to their relatively stable value. Moreover, borrowers have the flexibility to repay the loan in EMIs or repay the entire loan amount at once, depending on their financial comfort.

This type of loan is particularly useful for those who want to meet sudden expenses—such as medical emergencies, business needs, or educational costs—without breaking their financial discipline. Since mutual funds can be volatile, it is important to keep track of their market value during the loan tenure. However, with the right approach, a loan against mutual funds allows you to access necessary funds without sacrificing long-term wealth creation goals.