An overdraft against your shares or mutual funds lets you raise money without selling — which also means without triggering capital gains tax. The mechanism that makes it cheap — the lender holds a claim on the pledged holding, much as a loan against property holds a claim on the house — is the same one that makes it dangerous: if the market falls, you get a margin call, and it arrives precisely when everything else is going wrong.
| Typical LTV on pledged securities | 50 / 80 % |
|---|---|
| What it means | Around 50% for equity, up to about 80% for debt mutual funds. |
as of 2026-08-15 · Lender product terms · reported
What to know
Interest is charged only on what you draw, not on the sanctioned limit, which makes this efficient for lumpy short-term needs and cheaper than an unsecured alternative at personal loan interest rates. Compare it against redeeming the investment: selling equity held over a year triggers long-term capital gains tax above the annual exemption, and you lose the compounding — the capital gains calculator gives you the number to weigh the interest against. For a genuinely short need, borrowing against the portfolio often costs less than the tax and the opportunity cost of selling it. The same logic applies to a deposit you do not want to break: a loan against FD keeps the contracted rate intact.
Set your own drawdown limit well below the sanctioned one. Borrowing the full 50% against equity means a 20% market fall puts you in margin call territory, and the lender is entitled to sell your holdings to restore cover — at the bottom. Treating the facility as a 25% line rather than a 50% one removes most of that risk.
Frequently asked questions
Is a loan against mutual funds better than redeeming them?
For a short, defined need, often yes — you avoid capital gains tax and stay invested, and you pay interest only on what you draw. For a long need, the interest compounds against you and redeeming is usually cleaner. The comparison is total interest against tax plus foregone returns.
What happens in a margin call?
If the value of the pledged securities falls so that your outstanding exceeds the permitted loan-to-value, the lender asks you to pledge more or repay part of the loan within a short window. If you do not, they can sell the pledged securities — typically in a falling market.
Which securities can I pledge?
Each lender publishes an approved list — usually large-cap shares, most mutual funds, and sometimes bonds. RBI Floating Rate Savings Bonds are a specific exception: they cannot be pledged at all. Small-cap and illiquid holdings are often excluded or heavily discounted.
Sources
- Lender published rate cards — Home, personal, vehicle and education loan rate cards — August 2026 — as of 2026-08-15
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