Loan Against ELSS Funds: Is It Allowed?
If you’ve invested in ELSS (Equity-Linked Savings Schemes), you probably chose it for two reasons:
- Tax savings
- The chance to grow your money through equities.
At some point, though, you might face a cash crunch and wonder—can I get a loan against elss funds to bridge the gap?
It’s not a strange question. Many investors want funding without disturbing their portfolio. But with ELSS, there are conditions that make this tricky—especially compared to other mutual funds.
Here’s what you need to know.
Understanding the Basics First
ELSS is a type of mutual fund that mainly invests in stocks. You can claim up to ₹1.5 lakh per year in tax deductions under Section 80C of the Income Tax Act by investing in ELSS.
However, it has a built-in lock-in period of 3 years. That’s where things start to change when it comes to using it as loan collateral.
Can You Take a Loan Against ELSS Funds?
Not during the lock-in period. That’s the rule.
Lenders can’t mark a lien on ELSS units until the 3-year lock-in ends. And without that lien, no bank or NBFC can offer a loan against it. During those three years, your ELSS units are off-limits—for any kind of withdrawal, transfer, or pledge.
Once the lock-in ends, things become more flexible. You can then:
- Use ELSS units as security for a loan
- Approach a lender to assess the eligible amount based on current value
- Choose from an overdraft facility or a lump-sum loan, depending on your needs
In short, loans against ELSS are allowed only after the lock-in period is over.
How Is ELSS Treated After 3 Years?
Post lock-in, ELSS works like any regular mutual fund. The lender places a lien on the units and offers you a loan based on the Net Asset Value (NAV).
Your units remain invested, and you continue to earn returns on them. You only lose the ability to redeem them until the loan is closed.
Here’s a Simple Comparison
| Feature | ELSS Funds (Under Lock-in) | ELSS Funds (Post Lock-in) | Regular Mutual Funds |
| Pledge for Loan Allowed? | No | Yes | Yes |
| Loan Eligibility | Not Applicable | Based on NAV & policy | Based on NAV |
| Lock-in Period | 3 Years | None (after lock-in ends) | Usually none |
| Tax Benefit | Yes | Already Availed | No |
Things You’ll Want to Ask the Lender
Before going ahead, ask your bank or NBFC a few questions:
- Do they accept ELSS funds once lock-in ends?
- What percentage of the fund value will they offer as a loan? (Typically, 50–70%)
- What’s the rate of interest?
- Are there any processing or maintenance charges?
- What’s the process for lifting the lien once you repay?
You’ll also want to check if your specific ELSS scheme is on their approved list. Not every scheme is.
Here’s a Recent Stat to Know
As of March 2024, ELSS funds had a total AUM of ₹1.55 lakh crore, according to AMFI. That shows steady investor trust in this category—despite the lock-in and market ups and downs.
Source: AMFI AUM Report – March 2024
When This Option Makes Sense
You might consider this type of loan if:
- Your ELSS units are already out of lock-in
- You need short-term funds but don’t want to break investments
- You’re looking for lower interest compared to personal loans
In such cases, borrowing against your ELSS can solve the issue without hurting long-term financial plans.
When It Doesn’t Work
There are also situations where it won’t help:
- The 3-year lock-in period is still running
- Your lender doesn’t accept ELSS even post lock-in
- You’ll need access to your ELSS units soon, and a lien would restrict that
Making the Smart Call in the End!
ELSS funds are locked for three years—that’s non-negotiable. Until that time is up, there’s no way to take a loan against them.
But once the lock-in ends, they become eligible for secured loans like any other mutual fund. If you meet the criteria and understand the conditions, it can be a practical way to access funds without losing your investment.
Still, don’t rush. Ask your lender the right questions. And make sure it aligns with your financial plans—especially your tax and redemption timelines.