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 Loan against mutual funds Devastating margin call 

"They're going to sell my entire portfolio."

That was the actual, panicked voiice a client who came to my office about 2 weeks ago. He had taken out a Loan Against Securities—or LAS—to fund a quick business need. He thought it was a genius move: unlocking cash without selling his mutual funds.

Until the market crashed.

Here is what the bank didn’t warn him about. When you borrow against your portfolio, your collateral can betray you overnight. Because your funds are tied to the market, a sudden crash shrinks the lender’s safety cushion.

When that happens, the bank triggers a margin call. And guess what? The clock is ticking. You don't get weeks to figure it out; you get a few working days. If you miss that deadline, you lose complete control.

This triggers a forced liquidation. Lenders sell your assets to protect *themselves*, meaning they will sell at the exact bottom of the market. You don’t get a say in the price. Your temporary paper losses are instantly locked in permanently.

Worse yet? It quietly wrecks your financial future. A forced sale goes down as a default, scarring your credit history and impacting every loan application you make for years.

The biggest trap is maxing out. Just because a lender offers to give you 50% to 80% of your portfolio's value doesn't mean you should take it. The higher the loan, the smaller your cushion before a margin call hits.

So, how do you use LAS without destroying your wealth? Three simple rules:

1. **Borrow small:** Stick to **30% to 40%** of your eligible limit. Give yourself a buffer.

2. **Stick to stability:** Only pledge liquid, stable large-caps or conservative funds. Stay away from volatile small-caps.

3. **Check your assumptions:** Never borrow money assuming the market only goes up.

Loan Against Securities isn't a bad financial tool. But it becomes incredibly dangerous when you forget that the safety net you borrowed against is the exact same thing that's falling.

If you found this helpful, share with with your friends , and drop a comment below—have you ever used a loan against your investments?


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