Loan Against Mutual Funds falls under the broader category of Loan Against Securities. These securities are categorized under an overdraft facility. Overdraft facilities are short-term loans by nature. As a practice, all short-term loans are evaluated and reassessed annually. This led to the common practice of providing Loan Against Mutual Funds for One Year. Agreements are written accordingly.
At the end of the tenure, if someone wants to continue with the facility, it has to be renewed. The renewal process is laborious, time-consuming, and costly in terms of redoing the KYC, Agreement, Stamp duty, etc. This is challenging to both the borrower and the lender. Many lenders, therefore, are going for 3 years instead of 1 year tenure.
In case you are evaluating your options, you must consider LAMF before taking any loan. Check your loan against Mutual funds eligibility now.
Another factor that you should consider is the Processing Fees. Every time there is a renewal of a loan, the processing fees are charged to cover regulatory and service costs.