You’ve spent years building your investments. Some of it may be in direct stocks, some in mutual funds. Then suddenly, a financial need comes up — maybe a business requirement, a large expense, or simply a temporary cash flow gap. And the first thought is usually: Should I sell my investments?
But selling also means stepping out of the market, possibly paying capital gains tax, and giving up future growth potential.
This is where borrowing against your investments can make more sense. Instead of liquidating your portfolio, you can use it to raise funds while staying invested.
That brings up the next question: should you pledge your shares or your mutual funds? While both allow you to stay invested, the right choice often depends on the investments you hold and your funding needs.
In this article, we’ll compare loan against shares and loan against mutual funds, including how they work, their benefits, risks, eligibility, and which option may suit different financial situations better.
What Is a Loan Against Shares?
What Is a Loan Against Mutual Funds?
Loan Against Shares vs Loan Against Mutual Funds: Key Differences
Loan Against Shares: Benefits and Risks
Loan Against Mutual Funds: Benefits and Risks
Documents Required for Loan Against Securities
Why Choose Infina Finance for a Loan Against Securities
Which Is Better — Loan Against Shares or Loan Against Mutual Funds?
A Loan Against Shares is a secured loan where you pledge listed equity shares from your demat account as collateral, and a lender advances funds against their market value. You remain the legal owner. The shares stay in your name and continue to earn you dividends and corporate benefits — they're simply marked as pledged with the lender until you repay.
The loan is usually offered as a flexible borrowing arrangement — your pledged shares set the ceiling, and you take out only as much as you actually need from that available pool. Interest is charged only on the amount you actually use, not on the full limit, which makes it efficient for short or irregular cash needs.
How much you can borrow depends on the value and quality of the shares pledged. Because share prices can move sharply, lenders apply a loan-to-value ratio to set the limit. Better-quality, more liquid stocks generally support a higher amount.
With a loan against mutual funds, you can access funds by pledging your mutual fund holdings while continuing to stay invested. Both equity and debt mutual funds may be eligible, depending on the lender's approved list of schemes.
Like a loan against shares, the ownership of the investment remains with you. Your mutual fund units continue to stay invested in the market, and depending on the scheme type, they may keep generating returns while pledged.
It's also typically structured as a flexible facility: the lender sets a borrowing limit based on the value of your pledged units, and you draw funds as you need them. You’re charged interest only on the funds you access, making it a flexible option for managing temporary liquidity needs.
How much you can borrow depends on the type of fund. Because mutual funds are usually more diversified than individual stocks, they're often seen as relatively more stable from a lending point of view, and debt funds, being steadier than equity funds, generally support a higher loan-to-value.
The basic structure of both loans is quite similar.
You pledge your investments to the lender, and based on their value, the lender sanctions a loan amount. The investments remain under lien until the loan is repaid.
However, the underlying asset changes the way the loan behaves.
In a loan against shares, the collateral value can fluctuate sharply because stock prices are more volatile. This means lenders may monitor the portfolio more actively and ask for additional margin if the market falls significantly.
In a loan against mutual funds, especially debt mutual funds, the fluctuations are usually lower. This can make the loan relatively more stable from a repayment and collateral perspective.
In both cases:
This broader category of borrowing is often referred to as a loan against securities, where financial assets are used to unlock liquidity without selling them.
Here’s how the two compare across the factors that matter most when borrowing.
In a loan against stocks, the collateral consists of listed company shares or equities. In mutual fund loans, the collateral is mutual fund units, which may be equity-based or debt-based.
Because mutual funds are diversified, they are generally considered less risky compared to individual stocks.
Shares tend to be more volatile because prices can move sharply based on market conditions or company-specific events.
Mutual funds, especially debt or hybrid funds, usually experience comparatively lower volatility due to diversification.
This directly impacts:
Your borrowing ceiling is shaped by the loan-to-value ratio, which is essentially the portion of your investment value that the lender is willing to fund.
For shares, lenders may offer a relatively lower LTV because of higher volatility.
For debt mutual funds, lenders may offer a higher LTV due to relatively stable valuations.
Interest rates depend on the lender, asset quality, and risk profile.
Generally:
When a loan is backed by shares, a steep drop in stock prices can lead to a margin call — at that point, you'd either need to bring in extra collateral or pay back a portion of the loan to balance things out.
This risk is usually lower in diversified mutual fund portfolios.
A loan against shares tends to appeal to investors who follow the market closely or those who've built up a meaningful equity portfolio over time.
A loan against mutual funds, on the other hand, tends to suit investors who want a steadier borrowing setup against a more diversified portfolio.
Benefits
Risks
Borrow without selling your shares, so you stay invested.
Share prices are volatile, so your borrowing limit can fall quickly.
Interest is charged only on the amount you actually use.
Higher chance of a margin call if the market drops sharply.
Lower rates than personal loans, as shares back the loan.
Only stocks on the lender’s approved list can be pledged.
You keep earning dividends on the pledged shares.
Shares may be sold to recover dues if you can’t repay.
Benefits
Risks
Borrow without redeeming your units, so they stay invested.
Equity funds still follow the market, so their value can dip.
Debt funds usually fetch a higher loan-to-value, so you can borrow more.
A sharp NAV drop can trigger a margin call.
Diversified funds are steadier, lowering the margin-call risk.
Units stay locked under a lien until the loan is repaid.
Interest is charged only on the amount you actually use.
Only schemes on the lender’s approved list can be pledged.
Eligibility criteria vary slightly across lenders, but generally include:
For Loan Against Shares
For Loan Against Mutual Funds
The lender may also evaluate factors such as portfolio quality, concentration risk, and existing financial obligations before approving the loan. If you'd like to check your eligibility for a loan against securities, you can do so online through: https://www.digilas.infina.co.in/
The paperwork is usually light, especially for individuals. You'll typically need valid KYC (identity and address proof), income tax returns for the last three years, and a CA-certified net worth statement. Businesses, firms, HUFs and trusts have their own document sets.
One helpful point worth noting: some lenders keep documentation minimal for smaller loans. At Infina Finance, for instance, no paperwork is required for loans up to ₹2.5 crores, which makes the process noticeably faster.
Once you've decided to borrow against your investments, the lender you pick makes a real difference. Here's what makes Infina a practical choice:
Get funding of up to 85% of your portfolio's total value. The final amount depends on the mix and quality of what you pledge.
Funds are typically approved and disbursed quickly, often within 24 hours, making it useful when liquidity is needed without long waiting periods.
Rates start at 10.5% per annum, and interest is charged only on the amount you actually use, not the full limit.
The process is designed to be efficient, with clear communication around terms, collateral, and repayment structures.
The honest answer is that neither is universally better. The right choice depends on what's already in your portfolio and what you need the funds for.
Loan against shares is best suited for:
A loan against mutual funds is often the better choice for:
If you hold both shares and mutual funds, many lenders allow you to use them together as collateral and calculate the loan limit based on the total value of your holdings.
Both loan against shares and loan against mutual funds can be effective ways to access liquidity without selling your investments.
The better option depends on the type of portfolio you hold, your comfort with market volatility, and how stable you want the borrowing structure to be.
Not sure which of your investments would give you the best terms? At Infina Finance, we can review your portfolio, walk you through eligible securities, and help you find the most efficient way to raise funds — before you commit to anything. Contact Infina Finance to get started.
It depends on your portfolio and risk preference. Loans against mutual funds are generally more stable, while loans against shares may provide better flexibility for active investors.
Yes. Both loans can run side by side, as long as the same security isn't pledged twice. The lender will also check your overall borrowing to make sure your portfolio isn't over-leveraged.
A loan against mutual funds usually carries a slightly lower rate because mutual funds, particularly debt funds, are less volatile than individual shares, which lowers the lender's risk. The exact rate depends on the lender, what you pledge, and your profile.
Yes. Pledging only locks the shares as collateral, and ownership stays with you. You continue to receive dividends, bonus issues, rights issues, and other corporate benefits while the loan is active. The only restriction is that you can't sell or transfer the pledged shares until the loan is closed.
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