Open any lender’s website and check their Loan Against Mutual Funds interest rate. Maybe one lender shows you 9%, another shows 10.5%, and somewhere in between sits a third option. Most people just shop around based on these numbers and pick whichever looks lowest.
Very few ask why the gap exists in the first place.
The answer comes down to one thing: the benchmark a lender uses to price the loan. Some lenders follow MCLR. Some follow the repo rate. Some don’t follow either and set a fixed number on their own.
That single choice decides:
- How fast (or slow) RBI’s rate moves actually reach you
- How much you pay every month
- Whether your rate changes during the loan tenure
This guide breaks down both benchmarks in plain terms, shows how they shape your LAMF interest rate, and tells you which structure tends to work better depending on your situation.
What Is the Repo Rate?
When commercial banks need short-term funds, the RBI is the institution they borrow from, and the rate charged for that borrowing is what we call the Repo Rate.
A few things worth knowing about it right now:
- Set by the Monetary Policy Committee (MPC), reviewed once every two months
- Held steady at 5.25% as of the June 2026 meeting — the third consecutive meeting without a change
- RBI hasn’t tilted either way yet, so nobody really knows if the next move will be a rate cut, a hike, or another pause.
- A public number — anyone can check it directly, no guesswork involved
- When it does move, lenders following repo-linked pricing tend to pass on the change faster than MCLR-linked lenders
This transparency is exactly why repo-linked loans have gained ground over the past few years.
What Is MCLR?
MCLR, or Marginal Cost of Funds-Based Lending Rate, came into the picture in April 2016. Before this, banks ran on something called the Base Rate, and the issue with it was simple — when RBI cut rates, banks took their time passing on the benefit, if they passed it on at all. MCLR was RBI’s fix for that.
But there’s a twist most people miss — MCLR isn’t some fixed industry-wide figure that everyone follows. Each lender works out its own MCLR internally, and rates differ from one lender to another.
There’s another layer to it too. MCLR isn’t a single rate even within one bank — there’s a different number for overnight loans, one for a month, three months, six months, and so on up to a year. Banks are supposed to review and publish these every month.
Here’s something that actually happened this year and shows why this matters. RBI kept the repo rate untouched right through 2026. But a number of lenders still went ahead and pushed their MCLR up anyway. By May 2026, the one-year median MCLR among scheduled commercial banks had crept up to about 8.65%, against 8.55% just a month earlier in April. The RBI didn’t move. Lenders did.
The 4 Components That Make Up MCLR
- Marginal Cost of Funds — the average cost the lender pays to raise deposits and borrow money
- Negative Carry on CRR — the cost of parking a portion of funds with RBI as reserves, which earns zero return
- Operating Costs — everyday running expenses like staff salaries and infrastructure
- Tenor Premium — an extra charge added for longer loan durations, since longer tenure means more risk for the lender
Once these four are added up, you get the lender’s MCLR for that particular tenor.
How MCLR and Repo Rate Impact Your Loan Against Mutual Funds Interest Rate
This is where it gets practical. Your Loan Against Mutual Funds interest rate isn’t just the benchmark — it’s the benchmark plus a spread the lender adds on top.
MCLR-Linked Loans — What Actually Happens
- Your rate = MCLR + Spread
- Say the one-year MCLR is around 8.7% and the spread is 1.8% — your effective rate works out to approx 10.5% p.a.
- Your rate stays frozen until your personal reset date rolls around, which for most borrowers falls somewhere between 6 and 12 months out.
- As seen recently, MCLR can rise even when the Repo Rate stays flat, since it also depends on each lender’s own cost of funds
This lag and independence from RBI policy are the single biggest drawback of MCLR-linked loans.
Repo-Linked Loans — The EBLR Structure
EBLR stands for ‘External Benchmark Linked Rate’ — a structure where your rate is tied directly to the repo rate instead of an internal number.
- Your rate = Repo Rate + Fixed Spread
- Example: Repo at 5.25% + spread of 4.75% = 10% p.a.
- Resets within 3 months of any RBI rate change — much faster than MCLR
- The flip side: if RBI raises the Repo Rate in future, your loan cost rises just as quickly
Fixed-Rate Loans — No Benchmark Involved
Some lenders skip both benchmarks entirely and set a fixed rate based on their own internal cost structure and risk assessment.
- The rate stays the same for the entire loan tenure, no matter what RBI does or what MCLR does
- No tracking benchmarks, no surprises mid-loan
- Particularly useful for short tenures, where benchmark resets wouldn’t even kick in before repayment
MCLR vs Repo Rate vs Fixed Rate — At a Glance
| Feature | MCLR-Linked | Repo-Linked (EBLR) | Fixed Rate |
| Benchmark | Lender’s internal cost | RBI Repo Rate | Lender’s own policy |
| Rate change frequency | Every 6–12 months | Within 3 months of RBI move | No change during tenure |
| Can rise even if RBI holds rates | Yes | No | No |
| Transparency | Moderate | High | High |
| EMI predictability | Moderate | Low | High |
| Typical LAMF rate range | 10%–12% | 9.5%–11% | 9%–12% |
The “Spread” — A Quick Word on the Hidden Cost
Both MCLR and repo-linked rates carry one more variable: the spread the lender adds on top.
- This spread is fixed by the lender and doesn’t move even if the benchmark drops
- So a Repo Rate cut of 50 bps doesn’t automatically mean your loan rate falls by 50 bps
- Always check your effective rate, not just the benchmark number
This is a detailed topic on its own — we’ll cover spreads and how lenders set them in a dedicated blog soon.
Which Rate Structure Actually Works in Your Favor?
- Expecting RBI to cut rates eventually? Repo-linked works better since the benefit reaches you faster
- Want predictable EMIs with zero tracking? A fixed rate keeps things simple
- Taking a short-term loan (3–6 months)? A fixed rate usually wins, since MCLR resets won’t even apply within that window
- Worried about lenders quietly raising MCLR? A fixed rate or repo-linked both protect you better than MCLR right now
Why LAMF Rates Are Still Lower Than Personal Loans
Regardless of which benchmark a lender follows, Loan Against Mutual Funds almost always beats personal loan pricing.
- Personal loans: 14%–24% p.a., unsecured, dependent on income proof and credit score
- LAMF: 9%–12% p.a., secured against your existing mutual fund units
- Your portfolio acts as collateral, which removes most of the lender’s risk
- No income documents, no credit score dependency — yet the rate is still better than most unsecured credit options
Conclusion
Before signing up for any Loan Against Mutual Funds, ask one simple question: which benchmark does this rate follow — MCLR, repo rate, or fixed? The response will be simplified if your EMI can change later and in which direction.
At Bulwark Capital, we keep this simple. Our LAMF interest rate is fixed at 9% p.a. — no MCLR tracking, no repo-linked surprises, and no mid-loan rate changes regardless of what the RBI or any lender’s internal cost structure does.
Add a 100% digital process, same-day disbursal within 4 hours, and zero prepayment penalty, and you get a loan that’s as predictable as it is fast.
Check your Loan Against Mutual Funds eligibility on Bulwark Capital today and put your portfolio to work without selling a single unit.
