What if you could live off your investments forever—without ever selling them?
Most people dream of building a corpus large enough to retire on. But the moment you start selling your investments to fund your lifestyle, you trigger capital gains tax and watch your corpus shrink. What if there was a way to access your money while keeping your investments intact and growing?
Enter Loan Against Mutual Funds (LAMF)—a strategy that lets you borrow against your mutual fund portfolio instead of selling it.
What is Loan Against Mutual Funds (LAMF)?
LAMF allows you to pledge your mutual fund units as collateral and borrow money against them from banks or NBFCs. Your investments remain invested, continue to earn returns, and you get cash to spend—without triggering any taxable event.
How It Works
- Pledge your MF units as collateral with a lender
- Borrow money at 9-11% interest (overdraft facility)
- Your corpus continues growing at expected 12-15% returns
- The spread (returns minus interest) sustains your withdrawals
- No capital gains tax until you actually sell
The Math Behind Perpetual Income
Here's the key insight: If your investments grow faster than your loan interest, you can theoretically withdraw forever.
The Formula
Sustainable Annual Withdrawal = Corpus × Net Spread
For example, with ₹5 Crore corpus:
- Sustainable withdrawal = ₹5 Cr × 2% = ₹10 Lakhs/year
- That's ₹83,333/month perpetually!
Who Is This Strategy For?
✅ Ideal candidates:
- HNIs with ₹2+ Crore in equity mutual funds
- Retirees who want to preserve capital
- Anyone sitting on large capital gains (avoiding 12.5% LTCG)
- People seeking tax-efficient regular income
❌ Not suitable for:
- Emergency funds (use liquid funds instead)
- People who can't handle market volatility
- Small portfolios (LTV limits make it impractical)
The Role of Inflation
Here's what many overlook: Your expenses will increase with inflation.
If you need ₹1 Lakh/month today, in 30 years at 6% inflation, you'll need ₹5.74 Lakhs/month for the same lifestyle! Our LAMF calculator factors this in, showing how your withdrawals should grow each year.
Don't Forget the Exit: LTCG Tax
When you eventually exit the strategy—either voluntarily or when LTV limits are breached—you'll need to sell MF units to repay the loan. This triggers Long Term Capital Gains tax.
Current LTCG Rate: 12.5% on gains above ₹1.25 Lakhs
Our calculator computes:
- How much you'll need to sell
- Your capital gains on that sale
- LTCG tax payable
- Net payout after tax
Pros and Cons
✅ Advantages
- Tax Efficiency - No LTCG until you actually sell
- Wealth Preservation - Corpus keeps compounding
- Flexibility - Overdraft facility, pay interest only on amount used
- No disruption - Continue getting dividends and growth
⚠️ Risks
- Market Volatility - If markets crash, LTV can breach limits
- Margin Calls - May need to pledge more or repay partially
- Interest Rate Risk - Loan rates may increase
- Sequence Risk - Bad returns early can derail the strategy
Try Our LAMF Calculator
We've built a comprehensive calculator that helps you plan this strategy:
What it calculates:
- Inflation-adjusted withdrawals - See how your ₹50K/month becomes ₹2.87 Lakhs in 30 years
- Year-by-year breakdown - Track corpus, loan balance, and net worth
- LTV breach warning - Know when you'll hit the 65% limit
- LTCG tax on exit - Exact tax payable when you close out
- Today's value - All figures shown in inflation-adjusted terms
Key Takeaways
- LAMF is a tax-efficient withdrawal strategy, not a loan for emergencies
- The spread matters - If loan interest exceeds returns, the strategy fails
- Factor in inflation - Your expenses will grow over time
- Plan for the exit - LTCG tax is deferred, not avoided
- Use our calculator to run multiple scenarios before committing
Ready to Plan Your LAMF Strategy?
Calculate your sustainable income, see year-by-year projections, and understand exactly how much you'll have after taxes.
Disclaimer: This article is for educational purposes only. LAMF involves market and interest rate risks. Please consult a SEBI-registered financial advisor before implementing this strategy.