Your daughter’s college fee of ₹4 lakh is due next week, and the money sits in a fixed deposit that matures in eight months, or in equity mutual funds you would rather not sell in a falling market. Breaking the FD costs you interest, and selling the funds may trigger capital gains tax and end your compounding. A loan against securities, or against the FD itself, lets you raise the cash while your investments stay in your name.
This guide explains how much you can borrow against fixed deposits, shares and mutual fund units, what loan-to-value (LTV) and margin mean, how lien marking and pledging work, what happens in a margin call, and which Reserve Bank of India (RBI) rules apply. It is general information, not advice on any product or lender.
What a loan against securities actually is
You hand the lender a right over an asset you already own, and the lender gives you cash against it. The asset is not sold. Your FD keeps earning interest, your shares keep paying dividends, and your mutual fund units keep their NAV. What changes is that you cannot sell, redeem or break that asset until the loan is repaid or the lender releases it.
Banks usually offer this in two shapes:
- Overdraft: a credit limit linked to your account. You draw what you need and pay interest only on the amount used, for the days it is used.
- Demand or term loan: a fixed amount paid out at once, with interest on the full sum.
For short, uncertain needs, the overdraft form is often cheaper because unused limit costs nothing.
Loan against a fixed deposit
This is the simplest secured loan in Indian banking. The bank marks a lien on your FD, which means the deposit cannot be closed or withdrawn while the loan runs. There is no market risk, because an FD’s value does not fall the way a share price can, so there are no margin calls.
RBI does not fix a single LTV for loans against deposits. Each bank sets its own policy. Some banks lend up to about 90% of the deposit, and the loan rate is usually set at a margin above the rate the FD itself earns. Check the exact numbers on your bank’s website before you apply, because they differ from bank to bank and between branch and online channels.
As an illustration, say you have an FD of ₹5 lakh earning 7% a year. At a 90% limit you could draw up to ₹4.5 lakh. Assume, for illustration, that the loan rate is 8%. Your real cost is the gap of about 1 percentage point, because the FD keeps earning 7% the whole time. Borrowing ₹3 lakh for four months would cost roughly ₹8,000 in interest, while the deposit continues to earn. Breaking the FD would usually mean a penalty.
One point to watch. Some deposits, such as non-callable deposits, do not allow loans or overdrafts, and tax-saving deposits come with their own restrictions, so check the product terms first. You can compare what your deposit will earn with our FD calculator.
Loan against shares and mutual funds: the RBI limits
RBI rewrote the bank rules for lending against shares and similar assets in its Credit Facilities Amendment Directions, 2026. The revised version, dated 30 March 2026, came into force from 1 July 2026, or earlier for a bank that adopted it in full. It defines the “eligible securities” banks may accept from individuals, and caps the LTV for each type.
| Security you pledge | Maximum LTV a bank can give | What it means on ₹10 lakh |
|---|---|---|
| Listed shares and listed convertible debt | 60% | Up to ₹6 lakh |
| Equity and hybrid mutual funds, ETFs, REIT and InvIT units | 75% | Up to ₹7.5 lakh |
| Debt mutual funds | 85% | Up to ₹8.5 lakh |
| Listed debt rated AAA | 85% | Up to ₹8.5 lakh |
| Listed debt rated AA to BBB | 75% | Up to ₹7.5 lakh |
| Government securities and T-bills | As per bank’s policy | Varies |
These are ceilings. A bank can set a lower LTV in its own credit policy, and many do for volatile stocks. Only listed Group 1 shares count as eligible, and commodity ETFs such as gold and silver ETFs are excluded from this list.
There are also rupee caps. Loans from the banking system to an individual against shares, equity funds, ETFs, REITs and InvITs are capped at ₹1 crore per person. Within that, no more than ₹25 lakh may be lent for buying securities in the secondary market. Banks can fix their own limits for loans against government securities, listed debt and debt funds. Separately, a bank may fund an IPO, FPO or ESOP subscription up to ₹25 lakh per person, but the loan cannot exceed 75% of the subscription value, so you must bring at least 25% in cash.
How the lender values your pledged holdings
The LTV is not calculated on whatever price you see on your trading app today. Under the RBI directions, listed shares and fund units are valued at the lower of two numbers: the average daily closing price or NAV over the last six months, or the closing price or NAV of the previous trading day.
This matters after a sharp rally. Say a stock you own has risen 40% in two months. The six-month average will be well below today’s price, so your borrowing limit will be smaller than a simple 60% of today’s value. After a fall, the previous day’s lower price becomes the figure used. Either way, the rule is built to be cautious.
Lien marking and pledging: the paperwork
For shares and other securities in a demat account, the lender’s right is created as a pledge inside the depository system. The steps described by the depository are roughly these:
- You and the lender each have a demat account. You check that your holdings are on the lender’s approved list.
- You submit a pledge request through your depository participant (often your broker), and the system generates a pledge sequence number.
- The lender’s participant accepts the request. If it does not accept within 15 days, the request lapses automatically.
- The shares stay in your demat account but are blocked, so you cannot sell or transfer them. You remain the owner and continue to receive dividends and other corporate benefits.
For mutual fund units held directly with a fund house rather than in demat form, the lender asks the fund’s registrar to mark a lien on the units. While the lien is on, you cannot redeem or switch those units, though they stay in your name and keep their market value. Many lenders now confirm the lien with a one-time password sent to your registered mobile number, so keep your contact details updated with your funds.
When the loan is repaid, the lender (or you, through your participant) asks for the pledge or lien to be released. If the loan is not repaid, the lender can invoke the pledge, which moves the securities to its account. That step does not need your confirmation.
Interest and other costs
Interest on a loan against securities is usually floating and is charged only on the amount drawn in an overdraft. Rates vary widely between banks and NBFCs, and between FD-backed and share-backed loans. As a general rule, FD-backed loans are the cheapest because the lender takes no market risk. Share-backed loans cost more.
Look beyond the headline rate. Ask about:
- Processing fee and annual renewal charge on the overdraft limit
- Pledge creation and release charges levied by your depository participant
- Penal charges if you breach the LTV or miss an interest payment
- Whether interest is debited monthly from the overdraft, which quietly raises the amount you owe
As an illustration, assume 10% a year on a ₹5 lakh overdraft against equity funds. If you use the full amount for three months, the interest is about ₹12,500. If you repay ₹2 lakh after the first month, it falls to roughly ₹9,200. To see how a longer fixed-term loan works out, run the numbers through our EMI calculator.
Margin calls: what happens when markets fall
A margin call is the lender’s demand that you restore the LTV after the value of your pledge has dropped. RBI requires banks to monitor LTV on an ongoing basis and to fix any breach immediately, and in no case later than seven working days from the day it happens. In practice, the bank will ask you to act quickly, and if you do not, it may sell some of your pledged securities.
Here is how the arithmetic works, as an illustration. You pledge shares worth ₹10 lakh and borrow ₹5 lakh, an LTV of 50%, comfortably under the 60% ceiling. The market falls and your shares are now valued at ₹7.5 lakh. Your LTV jumps to 66.7%, above the cap. To get back to 60%, you have three choices:
- Repay about ₹50,000, bringing the loan down to ₹4.5 lakh (60% of ₹7.5 lakh)
- Pledge more eligible shares, a little over ₹83,000 worth, to lift the collateral to about ₹8.33 lakh
- Let the lender sell some pledged shares, often at the worst possible time
The lesson is simple. Do not borrow up to the full limit against shares or equity funds. Keeping the LTV well below the cap gives you a buffer against an ordinary market correction.
Banks versus NBFCs
Non-banking financial companies (NBFCs) also lend against shares and funds, often through quick digital journeys. They follow a separate set of RBI rules. According to RBI’s FAQs for NBFCs, those lending against shares must maintain an LTV of 50% at all times, accept only Group 1 securities for loans above ₹5 lakh where the money goes into capital markets, and report pledged shares to the stock exchanges. Loans against equity mutual fund units attract the same LTV as shares, while LTV for exclusively debt funds is left to each NBFC’s loan policy. An NBFC can also finance an IPO subscription up to ₹1 crore per borrower.
Whichever lender you choose, check that it is a bank or an RBI-registered NBFC, read the key fact statement, and compare the all-in cost, not just the rate.
When a loan against securities makes sense
It works best for short, clear needs: a fee or deposit that falls due before an FD matures, a bridge until a bonus or property sale comes through, or a medical bill you plan to repay within months. It is usually cheaper than a personal loan or a credit card balance, and it does not force you to sell investments at a bad moment or pay tax on gains.
It is a poor fit for long-term spending you cannot repay, and a risky one if you use borrowed money to buy more shares. If markets fall, you can lose on the investment and face a margin call at the same time.
Key takeaways
- FD-backed loans have no market risk and are usually the cheapest. Banks set their own LTV, which at some banks goes up to about 90% of the deposit.
- For bank loans against securities, RBI caps LTV at 60% for listed shares, 75% for equity funds, ETFs, REITs and InvITs, and 85% for debt funds.
- Bank loans to an individual against shares and similar assets are capped at ₹1 crore, with ₹25 lakh for buying securities in the market.
- Your holdings are valued at the lower of the six-month average or the previous day’s price.
- Borrow well below the limit so a market dip does not trigger a margin call or a forced sale.
