What does it mean to pledge mutual funds as collateral?

Pledging mutual funds involves using your investment units as security to obtain a loan from a financial institution.

Can all types of mutual funds be used as collateral?

Not all funds are eligible. Generally, equity, debt, and hybrid mutual funds are accepted. The eligibility depends on the lender’s policies.

You pledge your mutual fund units to the lender, who assesses their value and offers a loan based on the NAV and LTV ratio.

The loan amount typically ranges from 50-80% of the NAV, depending on the type of mutual fund.

No, your mutual fund investments continue to earn returns, as they are not sold, only marked as pledged.

In case of default, the lender has the right to sell the pledged units to recover the outstanding loan amount.

Can You Pledge Mutual Fund Investments as Collateral? - Liquify