Investing in mutual funds has become one of the most popular and accessible ways for Indians to build wealth over time. With SIPs (Systematic Investment Plans), tax-efficient returns, and the potential for long-term compounding, mutual funds have made it easier for retail investors to participate in market-linked growth. However, a growing trend has sparked debates among financial experts and consumers alike: Should you take a personal loan to invest in mutual funds?

On the surface, this approach may seem like an aggressive investment strategy, especially for those with a high-risk appetite. But is it wise to borrow money via loans for an investment that comes with market risk? Can the potential returns justify the cost of interest?

This guide breaks down the pros, cons, risks, and best practices of using a personal loan for mutual fund investment in 2025. We also examine how tools like loan EMI calculator app and fintech platforms, such as Stashfin, can help you plan this strategy more effectively if you decide to pursue it.

Why Do People Consider Taking Personal Loans for Investment?

There are several reasons why individuals consider leveraging personal loans for investment in mutual funds:

a) Lack of Immediate Capital

An investor may have identified a market opportunity but doesn’t have sufficient liquidity to make a lump-sum investment.

b) Market Timing

Some investors believe they can capitalise on short-term corrections or long-term rallies by entering the market with borrowed funds.

c) Wealth Accumulation Goals

High-return goals, such as early retirement, a child’s education, or a down payment for a house, can motivate individuals to pursue high-growth strategies.

d) Easy Access to Loans

With platforms like Stashfin and others offering quick, unsecured personal loan with minimal documentation and instant disbursal, borrowing has become more convenient than ever.

However, borrowing to invest is not a decision to be taken lightly. It requires strong financial discipline, a clear understanding of risks, and a strategy to repay the loan regardless of market performance.

Evaluating the Pros and Cons

Before applying for a personal loan to invest in mutual funds, it's essential to weigh the advantages against the risks.

Pros

a) Leverage Potential

If the mutual fund generates returns higher than your loan’s interest rate, you can profit from the difference. For example, if your loan interest rate is 11% and your fund delivers 14%, you make a 3% net gain (excluding taxes and charges).

b) Diversification Opportunity

A lump-sum loan amount allows you to invest across various mutual fund categories (equity, debt, and hybrid), thereby improving your portfolio diversification.

c) Immediate Market Entry

You can invest without waiting to build savings, especially during market corrections when asset prices are attractive.

d) Tax Efficiency

Equity mutual funds held for more than a year are subject to Long-Term Capital Gains (LTCG) tax at 10% beyond ₹1 lakh, which is more efficient than interest on fixed-income investments.

Cons

a) Interest Cost and EMI Pressure

The biggest downside of taking a loan is the fixed interest obligation. Even if your investment underperforms or results in a loss, you must still repay the EMI.

b) Market Volatility

Mutual fund returns are not guaranteed. A market downturn during your loan tenure can erode your capital while you continue to make EMIs.

c) Risk of Over-Leverage

Using borrowed money to invest can be financially dangerous if you don’t have backup savings or job stability.

d) No Tax Benefit on Loan

Unlike home loans or education loans, personal loans taken for investment do not offer any tax deductions on interest payments.

e) Impact on Credit Score

Failure to repay EMIs on time can negatively impact your CIBIL score, potentially reducing your future loan eligibility.

Key Factors to Consider Before Opting for a Loan to Invest

If you're still inclined to explore this strategy, keep the following considerations in mind:

a) Compare Loan Interest Rates

Use loan EMI calculator apps, such as those offered by Stashfin, to estimate your monthly obligations. Ideally, look for a loan with an interest rate below 11% and a flexible repayment tenure.

b) Choose the Right Mutual Fund Category

Avoid investing in high-risk thematic or sectoral funds. Opt for diversified large-cap or hybrid funds that offer stability alongside potential returns.

c) Investment Tenure vs Loan Tenure

Align your investment horizon with your loan tenure. Avoid short-term funds with long EMIs or vice versa.

d) Assess Your Risk Profile

If you're a conservative investor or new to mutual funds, taking a loan for market investment may not be suitable. Even experienced investors should allocate only a small portion of their portfolio to leveraged investments.

e) Use Trusted Fintech Platforms

Stashfin, one of India’s leading digital loan apps, offers personalised personal loans with flexible terms, real-time tracking, and minimal paperwork. Their loan EMI calculator app helps you plan your finances and understand repayment obligations in advance.

Conclusion

Taking a personal loan to invest in mutual funds can be a calculated risk, but it’s certainly not for everyone. While the idea of leveraging borrowed capital to amplify gains may sound appealing, the potential downsides, including interest costs, market unpredictability, and repayment pressure, can outweigh the benefits for most retail investors.

If you're financially disciplined, have a clear investment goal, and are confident about market trends, then this strategy might work in your favour. But it’s crucial to use tools like a loan EMI calculator app to map out your repayment plan and choose the right personal loan product with favourable terms.

Platforms like Stashfin are making it easier for responsible borrowers to access customised loans quickly, while also helping them stay on top of their repayment schedules. However, even with the convenience of such fintech solutions, investing borrowed money in mutual funds remains a high-risk strategy that must be executed with caution and prudence.

As with any financial decision, consult with a registered financial advisor to understand your risk capacity before proceeding. In most cases, slow and steady SIPs backed by disciplined saving habits remain a safer and more sustainable path to long-term wealth creation.