A hospital bill, a house repair, a fee deadline: needs do not wait for the market to recover. With the Nifty 50 about 13% below its January 2026 record as of 21 October 2026, many salaried investors facing an expense are stuck between three bad-feeling options. This guide walks through the maths of each with one worked example, so you can see the trade-off clearly. It is part of our guide to investing in a flat market.
This is general information, not investment advice. Consider a SEBI-registered investment adviser for personal advice, and a chartered accountant for tax.
The order that usually makes sense
One worked example
An illustrative profile, not a real customer. Ravi, 34, salaried in Pune, needs ₹2,00,000 for a family medical expense. He invested ₹6,00,000 in equity mutual funds through 2024 and 2025. Today they are worth ₹5,40,000, a 10% paper loss. He has no separate emergency fund. His take-home pay is ₹85,000 a month.
| Option A: redeem ₹2 lakh | Option B: personal loan ₹2 lakh | |
|---|---|---|
| Cash in hand | ₹2,00,000 (less any exit load) | ₹2,00,000 (less processing fee) |
| What it costs you | A realised loss of about ₹22,200 on the units sold | Interest of about ₹15,500 over 12 months, plus fees |
| Monthly impact | None | EMI of about ₹17,960 for 12 months |
| Portfolio afterwards | ₹3,40,000 stays invested | ₹5,40,000 stays invested |
| Tax angle | The capital loss can be set off against capital gains and carried forward | No tax benefit for a personal loan used for personal needs |
| Main risk | Missing any recovery on the units sold | Markets stay flat or fall and you pay interest anyway |
Illustrative. Loan figures assume an annual interest rate of 14% on a reducing balance for 12 months, chosen only for the example; your actual rate, fees and APR are in the lender’s Key Fact Statement. Omozing personal loan rates start from 11% a year. Realised loss assumes units sold in proportion: ₹2,00,000 of a portfolio bought for ₹6,00,000 and now worth ₹5,40,000 had a cost of about ₹2,22,200.
The break-even question nobody asks
When you borrow instead of selling, you keep ₹2,00,000 worth of units invested and pay about ₹15,500 in interest. So those units need to rise by roughly 7.7% within the year just to cover the interest, before fees. Here is what happens to Ravi under four market outcomes, compared with simply selling.
Borrowing instead of selling: net gain or loss vs Option A after 12 months
Illustrative. Gain or loss on ₹2,00,000 of retained units minus ₹15,489 interest (14% a year, 12-month reducing-balance loan). Ignores processing fees, exit loads, taxes and dividends. Market returns are scenarios, not forecasts.
In two of the four scenarios, borrowing leaves Ravi worse off, and in a flat market, the very situation he is in, he loses about ₹15,500 for nothing. Borrowing only wins if the market rises meaningfully within the loan term. Nobody can promise that. So the honest framing is:
Borrowing to avoid selling is a bet on the market. Borrowing for a genuine need, with an EMI you can afford, is a cash-flow decision. Know which one you are making.
When a loan can still be the sensible choice
- The investments are earmarked for a specific long-term goal, such as a child’s education, and selling would derail the plan.
- The EMI fits comfortably: a common rule of thumb is to keep all EMIs below about 40% of take-home pay. Ravi’s ₹17,960 EMI is about 21% of his salary.
- The need is genuine and one-off, not a lifestyle expense or a top-up to invest more.
- The lender is regulated: an RBI-registered bank or NBFC that gives you a Key Fact Statement with the APR before you sign.
- You use the time to build a buffer, so the next emergency does not force the same choice.
When redeeming is usually cleaner
- You are already paying other EMIs or carrying card dues, and another EMI would stretch you.
- The money was never really long-term, or the goal is near anyway.
- Your portfolio has more equity risk than you are comfortable with; a partial sale also rebalances it.
- You would otherwise need a high-cost loan app to bridge the gap. That is the worst of both worlds.
A middle path is common: redeem part, borrow less. Selling ₹1,00,000 and borrowing ₹1,00,000 halves both the realised loss and the interest.
What about a loan against mutual funds or shares?
Many banks and NBFCs lend against pledged mutual fund units or shares. These loans are secured, so the interest rate is often lower than an unsecured personal loan, and your units stay invested. But understand the catch in a falling market: the lender lends only a fraction of the portfolio’s value, and if prices drop, it can ask you to add cash or more units (a margin call) or sell the pledged units. You could end up selling at a lower price than today. Read the lender’s terms on margin calls before you pledge anything.
The tax silver lining of selling at a loss
If you do redeem at a loss, it is not wasted. Under the income tax rules published by the Income Tax Department (as of October 2026), a short-term capital loss can be set off against both short-term and long-term capital gains, while a long-term capital loss can be set off only against long-term gains. Unused losses can be carried forward for eight years, but only if you file your return by the due date. See our guide to tax-loss harvesting in India for how this works.
Need funds for a genuine expense?
Omozing personal loans for salaried professionals: up to ₹25 lakh, 3–36 months, rates from 11% a year, two documents, and a Key Fact Statement with the full cost before you sign. No upfront fees before approval.
Frequently asked questions
Should I sell mutual funds at a loss for an emergency?
Use an emergency fund first if you have one. If not, compare the realised loss from selling with the full interest cost of a loan. Selling avoids a monthly EMI; borrowing only pays off if your investments rise more than the interest within the loan period.
Is it better to take a personal loan than redeem investments?
Only when the need is genuine, the EMI fits comfortably within your income and the investments are earmarked for a long-term goal. Taking a loan purely to avoid booking a loss is a bet on the market.
How much does my portfolio need to rise to justify a loan?
Roughly the total interest divided by the amount borrowed. In our example, a ₹2 lakh loan at 14% for 12 months costs about ₹15,500, so the retained investments must rise about 7.7% in a year just to break even, before fees.
Can I use a loss on mutual funds to save tax?
Yes. A short-term capital loss can be set off against short- or long-term capital gains, and a long-term capital loss against long-term gains. Unused losses carry forward for eight years if you file your return on time.
Is a loan against mutual funds safer than a personal loan?
It is secured and often cheaper, but in a falling market the lender can make a margin call or sell your pledged units. It suits people who can add cash quickly if prices drop.
Should I take a loan to buy more units while prices are low?
No. Borrowing to invest adds a fixed cost to an uncertain return and can magnify losses. Use loans only for genuine needs.
Sources (as of 22 October 2026): Income Tax Department, “Set off and carry forward of losses under the Income-tax law” (incometaxindia.gov.in); Nifty 50 closing levels from Business Standard (21 Oct 2026) and NSE-based reports. All loan and portfolio figures are illustrative calculations. Check the official source before acting.
Omozing is the digital lending brand of Aparampaar Finance Private Limited, an RBI-registered non-deposit-taking NBFC. We do not offer investment products or advice. This is general information, not investment advice; consider a SEBI-registered investment adviser for personal advice. See our regulatory disclosures and grievance redressal process.