Will my mutual fund units be sold if the NAV drops?

Not immediately. If the value of your pledged mutual funds falls and your Loan-to-Value (LTV) ratio exceeds the lender's permitted limit, you may receive a margin call. Your units are generally sold only if you do not resolve the shortfall within the lender's specified timeframe.

What is a margin shortfall in a loan against mutual funds?

A margin shortfall occurs when the outstanding loan exceeds the revised eligible borrowing limit after the Net Asset Value (NAV) of your pledged mutual fund units declines. You can usually resolve it by pledging additional eligible units, repaying part of the loan, or using a combination of both.

How can investors reduce the risk of a margin call?

Borrow below your maximum eligible limit, maintain unpledged mutual fund units as a buffer, diversify with lower-volatility debt or hybrid funds where appropriate, monitor your Loan-to-Value (LTV) ratio regularly, and make partial repayments whenever possible.

Does the lender notify borrowers before liquidating pledged mutual fund units?

Yes. Lenders generally issue alerts when your LTV approaches the permitted threshold and send a formal margin call if the threshold is breached. Borrowers are typically given an opportunity to restore the required collateral before any liquidation of pledged units takes place.

Loan Against Mutual Funds Risk: What Happens If Value Falls?

Home > Blogs > Loan Against Mutual Funds Risk: What Happens If Value Falls?

Liquify | Wednesday, July 15th, 2026, 3:55:54 PM

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