It is needed the most to manage liquidity with utmost caution in this uncertain economic situation. Borrowing against mutual fund is now a regular phenomenon for most of the Indian investors, and it is a normal way of raising funds within a short period without closing out their investment. It helps you to meet your financial requirements without the need to sell out your investments, which still grow in value.

But, to inform you, the interest rate on the loan against mutual fund is not fixed. It keeps varying depending on certain points considered by the lenders while approving the loan. A slight difference in the interest rate will contribute significantly to your variation in the repayment burden in the long run.

If you are taking a loan against mutual funds in the year 2025, then these are the five most crucial parameters which will determine your loan against mutual funds rate of interest:

1. Mutual Funds Type Pledged

The type of mutual fund, one you are looking forward to mortgage, has a significant role in the rate of interest. All funds have a different level of risk, and the lenders take it into consideration while determining the loan against mutual funds rate of interest.

Debt Mutual Funds

They are secure as they invest predominantly in fixed-income generating securities such as government bonds and company bonds. Loans against debt funds are relatively cheap.

Equity Mutual Funds

Mutual funds that invest a major part of their investments in equity shares are risky as the market is subject to fluctuations. Loans based on equity mutual funds are hence costly.

Hybrid or Balanced Funds

Investments are made in debt and equity securities in proportionate measure. Loans against hybrid funds are priced at an interest rate that is between that of debt and equity funds.

In 2025, the financiers do not want to lend money to very volatile schemes such as small-cap equity schemes or theme schemes and lend at matching loan. If you offer margin of low-risk debt or balanced schemes, you are able to get a good loan against mutual funds interest rate.

2. Loan-to-Value (LTV) Ratio

Loan-to-Value is the proportion of how much you can borrow against what portion of your mutual fund holdings you have as collateral. It is one of the determinants of your interest rate on mutual fund loan against.

Generally, lenders provide you with:

• 70% of Net Asset Value (NAV) in equity mutual funds
  
  

• 80-85% of the NAV in debt mutual funds
  
  

With the higher RBI norms and risk management strategies in 2025, there have also been some lenders who have raised LTV norms. Taking a smaller percentage of the market value of the mutual fund is a secure loan to lenders, who advance it at a lower rate of interest.

On the contrary, risk premium on a loan with increased LTV is also possible and your loan against mutual fund interest rate will be higher. Therefore, it is always wise to exercise caution while taking a loan.

3. Borrower's Credit Profile

Though the mutual fund loan is a secured one, your borrower's credit profile also plays a role to increase the interest rate imposed upon you.

In 2025, the lenders consider with data analytics and AI-driven credit score models:

• Your Credit Score (CIBIL/Experian)
  
  

• Debt-to-Income Ratio
  
  

• Payment History
  
  

• Current Loan Commitments
  
  

A credit score of 750 and more will mostly guarantee the availability of the best loan against mutual funds interest rate. Even if the collateral is good, the lenders are careful because if the mutual fund price drops significantly because of market volatility, recovery is hard.

If defaults, arrears, or overutilization are reflected in your credit report, higher interest can be charged. Therefore, it is advisable that you keep your credit record healthy even when you are availing a secured loan on mutual fund.

4. Relationship with the Lender

2025 banks and NBFCs more and more and increasingly focus on customer loyalty. Banks and NBFCs provide existing customers with a good relationship with them preferential interest rates on loans against mutual funds.

Determinants which can decide preferential pricing are as follows:

• Maintaining salary account or premium savings account with the lender
  
  

• Maintaining fixed deposits or valuable investments in their portfolio
  
  

• Maintaining insurance policies or credit cards of the same bank
  
  

They also provide pre-approved loans on mutual funds to select customers, with faster disbursement at lower interest rates.

Always check the special offer your existing banking company might be offering prior to approaching a new lender before borrowing a loan on mutual fund.

5. Current Market Conditions

Monetary policy and economic conditions also play an important role in determining the interest rate of loan against mutual funds.

In 2025, RBI monetary policy is sensitive to the management of inflation, foreign economic conditions, and currency stability. Repo rate changes are the triggers for the general lending rate in the market.

When repo rates are cut:

• Lending rates increase
  
  

• Reduced loan against mutual funds rate favors borrowers
  
  

When repo rates are raised:

• Lending expenses increase
  
  

• New loans become expensive
  
  

So, in case you have a loan against mutual fund, borrowing at low interest will save you huge sums on your loan for the whole lifespan.

Other Things to Remember

Apart from the above primary considerations, other 2025 considerations are:

• Processing Fee: There usually is a small processing fee charged by a lender on a mutual fund loan. Include it always in your cost of calculation.
  
  

• Ease of Repayment: Seek out those banks which make easy repayment through overdraft facilities against mutual funds rather than strict EMIs.
  
  

• Minimum and Maximum Loan Amounts: Minimum ticket size policy and maximum loan limit policy against mutual fund portfolios belong to various lenders.
  
  

• Digital Loan Facilities: There is end-to-end digital processing of loans against mutual funds provided by all large banks, eliminating paperwork and accelerating disbursements.
  
  

Knowledge of these may not only help you obtain a better loan against mutual funds interest rate but even a convenient and hassle-free borrowing experience.

Conclusion

A mutual fund loan can be an extremely helpful means to fulfill short-term cash needs without having to liquidate your investments. But it's information on determinants for your loan against interest rate of mutual funds that is critical in a bid to borrow sensibly. The quality of credit that you are based on the amount of mutual funds that you can pledge as collateral, your LTV ratio, your reliability, your reputation with your lender, and prevailing market conditions mainly determine how fast you will be borrowed.

By remaining up to date and applying for your loan at the last possible moment, you will be able to reduce your cost of borrowing and maximize your 2025 financial freedom. Select wisely, and have your loan acting on your behalf towards your financial objectives while still ensuring your investment growth.