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Loans Against SIP: Meaning, Benefits, How to Apply

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October 6, 2023


What’s Inside

While lump-sum investments in mutual funds are still a long shot for most of us, SIP or Systematic Investment Plans have made it easier to reap market-linked returns. Fostering disciplined investment habits, SIPs make periodic investments in mutual fund schemes possible. 

However, when faced with a pressing financial crisis, most think stopping SIPs or redeeming investments is prudent. But that's not the case. A loan against your SIP is a better alternative since it doesn't jeopardise your investment trajectory or push you to pay high exit loads. 

In this blog, we will explore what loans against SIP are and how to apply for them. 

What is a Loan Against SIP? 

A loan against SIPs is a credit facility that allows you to borrow funds by pledging SIP investments with a lender. In other words, you can use the mutual fund units in your portfolio as collateral for a loan and keep investing in your SIP, even when your investments have a lien.

How Does a Loan Against SIP Work?

Lenders evaluate the maximum loan amount based on your MF units' NAV (net asset value), the LTV ratio applicable to the fund type, and the selected investment tenure. Once the loan is repaid in full, the lender’s lien on the funds is revoked. However, if you default on the loan payments, the lender reserves the right to exercise its lien on the mutual fund units, redeeming them to recoup the borrowed sum.  

Benefits of Loans Against SIP

While now you know we can get loans against SIPs, you might be wondering if it's actually prudent to do so? Here’s why loans against SIPs are beneficial:

No Need to Divert From Your Financial Goals

Most of us make regular investments through SIPs to reach certain financial goals. Suspending SIP contributions or redeeming your investment during an emergency can disrupt your financial plans. With a loan against your SIP, you can leverage your investment to obtain the required funds without losing ownership rights or diverting from your financial goals. 

Instant Funding

Loans against your mutual funds SIPs are ideal for times when you need instant funds. Since the entire process is digital and requires minimum paperwork, most lenders approve and sanction the loan in minutes. 

Reasonable Interest Rates 

As an asset-backed borrowing facility, loans against SIPs come with lower interest rates than unsecured loans, like personal loans. This, in turn, reduces your cost of borrowing. 

Good for Short-Term Requirements

If your cash flow requirement is only short-term, loans against SIPs may be your best bet to raise funds. Instead of redeeming your investment, you can instantly meet your credit requirements and repay the loan.

Interest Payment Only on the Used Sum 

Interest on loans against mutual funds SIPs is not calculated on the sanctioned loan amount. Rather, it is calculated on utilised sum and the duration of utilisation. This makes managing the repayments super-easy and pocket-friendly.   

Keep Earnings Intact During the Loan Tenure

Since you retain ownership of the MF units, you keep benefiting from market gains even when there’s a lien on your funds. 

How Can I Get a Loan Against SIP?

Remember that the application process for getting a loan against your SIP may vary across lenders. That said, here’s a quick overview of what to expect:

Step 1: Select a lender that offers loans against SIPs.

Step 2: Register yourself on the lender’s portal/app and log into your account.

Step 3: Complete the online application form with details like your folio number, scheme name, number of units, etc.

Step 4: Finish your digital KYC by fetching details from Digilocker or manually uploading scanned Aadhaar and PAN Card copies. 

Step 5: Enter your bank details and select your RTA. 

Step 6: Log in to the RTA portal to select the funds and number of units you wish to pledge.

Step 7: Complete the OTP verification if you agree with the proposed loan amount.

Step 8: Create an e-mandate for payment and sign the e-agreement after carefully reading it. 

Wrapping It Up

Loans against SIPs can help you raise an instant line of credit without abandoning your financial plans. These loans are much better alternatives to traditional credit facilities like personal loans, especially when you need low-cost instant funds for short-term use. However, weighing your options and thoroughly checking the lender’s policy is always prudent to see if your SIP investments qualify for the loan. 

No SIPs Yet? Start Investing on Fi Today! 

If you haven’t started mutual fund investments, start your journey today with Fi. Mutual Fund investments on Fi are commission-free. With its intuitive user interface, suited for novice & seasoned investors, you can select from over 900 direct Mutual Funds. Plus, Fi's 100% secure as it functions under the guidance of epiFi Wealth, a SEBI-registered investment advisor. To help simplify the steps involved, you can invest daily, weekly, or monthly via automatic payments or SIPs — created with one screen tap. 

Frequently Asked Questions

1. What is a loan against SIP, and how does it work?

A loan against SIP is a credit facility that allows you to use your MF units as collateral to borrow funds and meet immediate needs. The NAV of your mutual funds determines the loan amount, which, when repaid in full, revokes the lender’s lien on the fund units. 

2. What are the eligibility criteria for obtaining a loan against SIP?

To qualify for a loan against SIP, your mutual fund units must fall within the lender’s approved scheme list and meet the lender’s minimum security value limit. 

3. Can I continue my SIP investments while using them as collateral for a loan? 

Yes. You can continue making SIP investments even when the units are pledged as collateral for a loan.

4. What are the interest rates and repayment terms for loans against SIP?

Interest rates for loans against SIPs are lower than those applicable to personal loans. As for repayment terms, most lenders allow you to repay these short-term loans via EMI payments or pay interest during the term and the principal at the end of the loan tenure. 

5. What are the risks and benefits associated with taking a loan against my SIP investments?

Risks associated with loans against SIPs include losing your investment if you default on the loan or reduced fund value due to market over-turns. Benefits include instant loan processing, lower interest rates, and retained investment ownership.


Fi Money is not a bank; it offers banking services through licensed partners and investment services through epiFi Wealth Pvt. Ltd. and its partners. This post is for information only and is not professional financial advice.
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Loans Against SIP: Meaning, Benefits, How to Apply


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