PayMe CEO Mahesh Shukla discussed how India’s expanding mutual fund investor base is creating demand for lending models that allow customers to access liquidity without redeeming their investments. This evolution is broadening the role of asset-backed credit within the country’s retail lending ecosystem.
Loans Against Mutual Funds
Mahesh Shukla further discussed how PayMe sees its role in that shift as making secured credit as simple to access as a UPI payment, while educating customers on when borrowing against an asset makes more financial sense than taking on expensive unsecured debt.
The biggest opportunity was not just lending; it was unlocking liquidity from an asset class that millions of Indians already own but rarely think of as a source of credit. India’s mutual fund AUM has crossed ₹80 lakh crore, yet most investors still redeem investments when they need funds, disrupting long-term wealth creation.
Trade-Offs Between Loans
Both personal loans and loans against mutual funds ultimately address the same need: access to liquidity. From a borrower’s perspective, customers should think about the trade-offs between the two, and in what situations might one be more suitable than the other.
If you already have a well-built mutual fund portfolio and need funds for a short-term requirement, a loan against mutual funds can be a very efficient option. You continue to remain invested, your wealth creation journey stays intact, and the borrowing cost is typically lower because an asset backs the loan.
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However, borrowers should also understand that market-linked assets come with market-linked risks. In case there is a sharp reduction in portfolio value, it becomes necessary to provide further collateral or partially repay the loan.
Risk Assessment
Loans against mutual funds sit at an interesting intersection of lending and investing, where the underlying asset is linked to market performance. This changes the way risk is assessed compared to more traditional retail lending products.
What makes loans against mutual funds fundamentally different from traditional retail lending is that the risk is not just linked to the borrower; it is also linked to the underlying asset. In a personal loan, the lender primarily evaluates income stability, repayment capacity, credit history, and cash flows.
With LAMF, those factors still matter, but there is an additional layer: the market value of the pledged mutual fund units. If markets decline and the Net Asset Value (NAV) of the fund falls, the value of the collateral can also reduce, which may require lenders to seek additional margin or rebalance exposure.
They aim to make lending more accessible and user-friendly, much like choosing the right width for engagement rings, by providing simple and efficient options for customers.
