What is pledging mutual funds?
Pledging lets you borrow money, or get margin for trading, against your mutual fund units without selling them. The units are marked with a lien in favour of the lender (or the clearing corporation for margin), so they stay invested and keep earning returns.
You can usually get up to about 50% of the value of equity funds and up to about 80% of debt funds. For a loan, interest is charged only on the amount you actually use. ELSS units still in their 3-year lock-in cannot be pledged.
While units are pledged you cannot sell or switch them. Once you repay the loan or no longer need the margin, ask for a release and the units become free again.
Example
Equity funds worth ₹2,00,000 can usually support a loan of about ₹1,00,000.
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