Can You Get a Loan Against Mutual Funds to Pay an Education Loan

An education expenses loan against mutual funds can help parents pay school and college fees without redeeming long-term investments. With education costs rising every year, many families prefer using their mutual fund portfolio to access funds while keeping their SIPs active.

Every June and December, the same panic hits thousands of Indian households.

The college uploads the fee challan, gives a 10–15-day window, and parents start calculating. 

Those who’ve invested in mutual funds over the years have the money, it’s just locked in a portfolio they don’t want to break. And they shouldn’t have to. An education expenses loan against mutual funds lets you pledge those units, get funds within 24 hours, and keep every SIP running exactly as it was.

What Makes Education Fees Tricky for Mutual Fund Investors?

The challenge is the recurring payment.

A four-year engineering degree means eight semester payments. A medical degree stretches that to ten. Each time the fee is due, a parent faces the same question: redeem or hold? Most end up redeeming in chunks, and by graduation, a portfolio that took a decade to build is hollowed out.

The math behind that decision is painful:

• ₹4 lakh redeemed today at 12% annual returns would have become ₹12.5 lakh in 10 years
• Every redemption above ₹1.25 lakh in annual gains attracts 12.5% LTCG tax [Section 112A, Income Tax Act]
• Units held for less than a year carry an exit load of up to 1%

Can You Use a Loan Against Mutual Funds Instead of a Traditional Education Loan?

Yes, and the two serve very different situations.

A traditional education loan is built for families that don’t have existing assets to fall back on. Rates range from 8% to 14% p.a.*, but processing takes 2–4 weeks, and anything above ₹7.5 lakh typically needs collateral or a co-applicant.

An education expenses loan against mutual funds skips all of that. 

• Your portfolio is the collateral
• No admission letter needed
• No co-applicant
• No weeks of waiting

Here’s how the two stack up:

Factor	Traditional Education Loan	Loan Against Mutual Funds
Interest rate	8%–14% p.a.	9%–13% p.a.
Disbursal	2–4 weeks	Within 24 hours
Collateral	Required above ₹7.5 lakh	Mutual fund units
Tax benefit	Section 80E deduction	Not applicable
Repayment	Starts after moratorium	Interest-only EMIs from day one

If your family’s income qualifies for the Section 80E benefit and the course is at a recognised institution, a traditional education loan might save you more through tax deductions. For parents who already have a strong mutual fund portfolio and need money fast without paperwork, LAMF is the quicker, simpler route.

How Does the Overdraft Structure Fit a 4-Year Course?

You pledge your mutual fund units once. The lender places a lien on them and gives you a credit limit up to 50% of NAV for equity funds, 80% for debt funds. From here, it works as an overdraft. You draw only what each semester demands, and you pay interest only on that drawn amount.

On the Liquify app, the setup takes four steps: 

• PAN-based eligibility check
• Digital pledge of selected schemes through CAMS and KFintech
• Aadhaar e-KYC
• Fund withdrawal within 24 hours

Once the facility is active, each semester draw is just a withdrawal from your existing limit.

What Should Parents Plan for Before the First Semester?

A few things are worth mapping out before the admission season begins:

• Total course cost — Add up all semesters, not just the first one. Check if your portfolio’s credit limit covers the full duration.
• Buffer for NAV drops — Market corrections can reduce your available limit. Don’t pledge 100% of your holdings.
• Repayment rhythm — The smartest approach is to repay between semesters. Interest runs only on withdrawn amounts, so clearing each tranche before the next draw keeps costs tight.
• Tax comparison — If your child qualifies for a traditional education loan with Section 80E benefits, run both scenarios before choosing.

Is This the Right Move for Your Family?

If you’ve spent a decade building a mutual fund portfolio through disciplined SIPs, and your child’s college fee is the next milestone, you have two paths. Redeem and watch years of compounding vanish semester by semester. Or pledge and let the portfolio keep growing while the fees get paid on time.

An education expenses loan against mutual funds gives you a better option. The SIPs continue. And four years from now, when your child graduates, your portfolio is still there.