Generally, no.
In an overdraft-style loan against mutual funds, interest is calculated on the amount actually utilised, not merely on the sanctioned limit.
If ₹6 lakh is available but only ₹2 lakh is withdrawn, interest normally runs on ₹2 lakh.
The undrawn limit may still be subject to separate fees or renewal conditions, so the Key Fact Statement should be checked before accepting the facility.
Limit and loan balance are different
The sanctioned limit is the ceiling up to which you may borrow.
The utilised balance is the amount already withdrawn and not repaid.
Interest follows the utilised balance because that is the amount the lender has actually funded.
A day-by-day example
Assume you have a ₹6 lakh sanctioned limit.
You:
- Use ₹2 lakh for the first 12 days
- Withdraw another ₹1 lakh for the next 8 days
Interest is therefore calculated on:
- ₹2 lakh for the first 12 days
- ₹3 lakh for the next 8 days
It is not calculated on ₹6 lakh for all 20 days.
What can still apply to the limit
A processing, documentation, pledge or annual renewal charge may be linked to the sanctioned facility rather than the daily balance.
Those items are different from interest and should appear in the Key Fact Statement and fee schedule.
Check postings, not just withdrawals
Interest posted to an overdraft account can increase the outstanding balance if it is not paid separately.
This does not mean the lender charged the unused limit.
It means accrued interest became part of the account balance under the agreed method.
A quick interest check
Before drawing, estimate the cost using:
Amount × Annual rate × Expected days ÷ 365
Also:
- Add disclosed fees
- Confirm the monthly billing date
- Check whether interest is debited to the overdraft or a linked account
- Recalculate after a large repayment or fresh withdrawal
The Bottom Line
Interest normally does not run on the full approved limit.
It runs on the day-wise utilised balance.
Separate one-time or periodic charges can still apply, which is why the interest rate alone is not the complete cost of the facility.
Facing a financial emergency?
Check how much credit your mutual funds may support
Get an indicative eligibility check. The final limit and terms are decided by the lending partner.
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Information on this page is general in nature. Eligibility, approved schemes, LTV, rates and charges depend on the regulated lender's current policy and the final loan documents. This is not financial advice. The content is purely for educational purposes.