Last updated 12 Nov 2026
A loan against a fixed deposit (FD), mutual fund units or an insurance policy lets you borrow against an investment you already own without selling it. The lender marks a lien on the asset, lends a part of its value, and releases the lien when you repay. It suits short-term needs where your investment should keep running, but if you do not repay, the lender can sell or adjust the asset to recover its dues.
These are secured loans, so lenders usually decide faster than on an unsecured personal loan. The asset, not your income, is the main protection for the lender. That does not make them risk-free for you. Read the lien terms, and see current rates on the interest rates page. No rates are quoted in this guide.
The idea in one table
Three assets you can borrow against
| Asset | What the lender holds | What you keep | Main risk |
|---|---|---|---|
| Fixed deposit | A lien on the FD | Your FD keeps earning its own interest until adjusted | Early adjustment of the FD if EMIs or interest are missed |
| Mutual fund units | A lien on the units, recorded with the registrar | Ownership of the units, and their gains or losses | Fall in unit value forcing a top-up or sale |
| Insurance policy | An assignment of the policy | Cover usually continues if premiums are paid | Policy can lapse or be surrendered if you default |
What a lien is
A lien is the lender's right to hold or block an asset until a debt is paid. For an FD, the bank marks the deposit as "lien marked", so you cannot break or withdraw it. For mutual fund units, the lender asks the fund registrar to block the units in your folio. For an insurance policy, you assign the policy to the lender in writing. When you repay in full, the lender removes the lien or assignment and gives you written confirmation. Always ask for that confirmation; it is your proof that the asset is free. See the lien glossary entry and hypothecation.
How much can you borrow: the margin
Lenders do not lend the full value of the asset. The part they keep back is the margin. The amount you can borrow is the asset's value after the margin is removed. The margin varies by asset and by lender. A stable asset such as an FD usually carries a smaller margin than a volatile asset such as an equity fund. The lender sets the margin, and it is stated in the sanction letter.
A worked example
A salaried engineer in Pune holds mutual fund units worth ₹10,00,000 and wants a short-term loan. Suppose the lender applies a margin of 40 per cent on that fund type (an illustration, not a quote). The lender values the units at ₹10,00,000, keeps back ₹4,00,000 as margin, and offers up to ₹6,00,000. If the market falls and the units drop to ₹7,00,000, the lender's margin rule now allows a loan of only ₹4,20,000. With ₹6,00,000 already drawn, the engineer is asked to add units or repay ₹1,80,000, or the lender may sell units to cover the gap. For an FD, the value does not fall, so this call does not arise.
How each loan works
Loan against a fixed deposit
- You apply to the bank holding the FD, or to another lender that accepts it as security.
- The FD is lien marked for the loan period.
- The loan is often an overdraft, so you pay interest only on the amount you use.
- The interest rate is usually a small margin above your deposit rate, set by the lender.
- The lender can adjust the FD against dues if you do not pay.
Loan against mutual fund units
- Lenders accept a list of funds and units. Many accept debt and large equity funds, but each lender decides.
- The lender checks units in your folio and uses the net asset value (NAV) for valuation.
- Your units are blocked, so you cannot redeem them while the loan runs.
- The loan is usually a revolving limit, with interest on the amount used.
- If the NAV falls, you may have to top up with more units or part-repay.
Loan against an insurance policy
- Usually available on traditional policies that have built up a surrender value.
- The lender lends a share of the surrender value, set by the insurer or lender.
- Pure term plans, which have no savings value, generally do not qualify.
- The loan can reduce the money paid out as a benefit if the policy ends before it is repaid.
- If the loan with interest grows past the policy's surrender value, the policy can be terminated.
How these loans compare with a personal loan and a gold loan
Comparison
| Point | Loan against FD, funds or policy | Personal loan | Gold loan |
|---|---|---|---|
| Security | Your investment, under lien or assignment | None | Gold ornaments held by the lender |
| Typical cost | Usually lower than unsecured loans, set by the lender | Higher, set by the lender | Set by the lender |
| Amount you can get | A part of the asset value after margin | Depends on income and credit | A part of the gold value, within the RBI loan-to-value rules |
| Speed | Often quick once the lien is marked | Depends on checks and documents | Often quick after gold is valued |
| Credit score impact | Less credit-led, but still reported to bureaus | Strongly credit-led | Less credit-led, but still reported |
| Main risk | Losing the investment or its growth | Higher cost and stricter eligibility | Losing the gold after default |
| Repayment style | Overdraft or EMI, as the lender sets | Fixed EMI | Bullet, EMI or interest-only, as the lender sets |
See the personal loan alternatives guide, the gold loan guide and the comparison of gold loan versus personal loan.
Risks to weigh
- Market risk: a falling NAV can lead to a top-up call or a forced sale.
- Loss of growth: units sold at a low point cannot recover later.
- Tax: selling units or breaking an FD to settle a default can trigger tax. Confirm the position with the Income Tax Department or an adviser.
- Blocked investment: you cannot redeem or break the asset while the lien stands.
- Missed payments are reported to credit bureaus.
- Foreclosure and part-payment rules, and any charges, are set by the lender.
Read what happens when you miss an EMI and the guide to prepayment and foreclosure.
When this type of loan makes sense
It makes sense when you need money for a short, defined period, the asset is stable, and you can repay without selling it. It rarely makes sense for a long-term need, for living costs with no repayment source, or to buy something that loses value. If you cannot service the interest, borrowing against your savings only delays the loss.
Charges lenders apply
Lenders may apply a processing fee, a lien marking or release fee, valuation or documentation charges, penal charges on late payment, and taxes on these charges. All are set by the lender. Ask for the Key Fact Statement and compare offers on the annual percentage rate (APR). Read the Key Fact Statement guide.
Applying through LOANZ 360
- You share your details and agree to a clear, item-by-item consent notice.
- Before any application goes to a lender, LOANZ 360 compares your details with each partner lender's published eligibility criteria, so you apply only where you are likely to qualify. This helps avoid unnecessary credit enquiries; too many lender checks in a short time can lower your score.
- Our team prepares a credit assessment summary before the file reaches a lender.
- You choose where to apply, and one advisor follows the file end to end.
- The lender decides, prices, sanctions and pays into your own bank account.
Frequently asked questions
Do I lose my FD interest when I take a loan against it?
No. The FD keeps earning its own interest while it is lien marked. You pay interest on the loan separately, at a rate the lender sets. The FD is adjusted only if you do not pay what you owe.
Can I borrow against any mutual fund?
No. Each lender keeps a list of accepted funds and fund types. Many accept debt and large equity funds, but the list, margin and limit are the lender's decision. Check the list before applying.
What happens if my mutual fund units fall in value?
If the value falls below what the lender's margin rule allows, you may be asked to add units or repay a part. If you do not, the lender can sell units to cover the shortfall.
Can I take a loan against a term insurance plan?
Generally no. Loans are given against policies that build a surrender value, such as endowment or money-back plans. A pure term plan has no savings value to lend against. Ask your insurer about your policy.
Does the loan affect my credit score?
The loan is reported to the credit bureaus like any other credit. Timely payments help your record, and missed payments hurt it. The lender may also check your credit report before sanctioning.
Is this better than a personal loan?
It depends on your goal and your assets. It usually costs less because the loan is secured, but you risk the asset. A personal loan needs no security but is credit-led. Compare the APR in the Key Fact Statement of each offer.
How do I get my FD or units back after repaying?
Ask the lender for a written lien release or a no-objection letter, and check that the bank, registrar or insurer has updated its records. Do not assume the release is done until you see it.
Related reading: Loan against shares guide, Loan against shares rules, Personal loan alternatives, Gold loan versus personal loan, Key Fact Statement and APR, Loan prepayment and foreclosure, Lien glossary entry, Margin money, Overdraft, Overdraft facility loans.