Loan Against Mutual Funds: What Investors Must Know About LTV, Risks, and Costs

• Varun Fatehpuria, Founder and CEO of Daulat Finvest, advises using loans against MFs as a short-term liquidity tool, not for return enhancement or lifestyle expenses.
• Investors can pledge mutual fund units to borrow, with the loan amount determined by the Loan-to-Value (LTV) ratio set by RBI guidelines.
• Current LTV ceilings are up to 75% for equity MFs, 85% for debt MFs, and around 65% for direct equities.
• Interest rates on these loans (10-12%) are higher than home loans (7-7.5%), making them suitable for temporary cash needs to avoid capital gains tax.
• Investors face margin call risks if market falls reduce the value of pledged units; it's recommended to borrow below the maximum LTV to mitigate this.