The concept of gifting in India has largely revolved around cash, gold, and consumer goods. While these choices carry cultural value, they don’t necessarily contribute to long-term wealth creation. In a country witnessing increasing financial awareness, a new form of gifting is emerging: the gifting of mutual fund units.
Gifting was legally permitted, but the on-ground process was complex, tedious, and incompatible with how most retail investors hold their mutual funds. With recent regulatory updates, gifting units has become easier. This guide explains what gifting mutual fund units means, how the new process works, and the tax treatment involved.
What Does Gifting Mutual Funds Mean?
When you gift mutual fund units, you’re transferring ownership of your investment to someone else without getting any money in return. The person you gift it to becomes the legal owner of those units.
With SEBI’s new rules, mutual fund units can now be gifted directly through platforms like CAMS and KFintech, no demat account needed. It’s a great way to support family goals, from education to retirement planning.
How Does the Gifting Process Work? (Demat vs Non‑Demat)
1. Gifting Units Held in Demat Form
Mutual fund units held in a dematerialised account (demat) can be transferred just like shares:
- You log in to your demat account or instruct your Depository Participant (DP).
- Select the mutual fund units you want to gift and enter the recipient’s demat account details.
- After confirmation, the transfer is executed.
- There are associated charges such as stamp duty (0.015% of transfer value) and transaction fees charged by brokers.
This route is straightforward, where both donor and recipient hold units in demat format.
2. Gifting Units Held in Non‑Demat (Statement of Account) Form
Here’s how it typically works:
- Log in to your mutual fund account or Transfer/Gift portal on an RTA like CAMS, KFintech, MF Central.
- Choose the mutual fund scheme and the number of units you want to gift.
- Enter the recipient’s KYC, PAN and folio details.
- If they don’t have a folio with that fund house, a new folio may be created.
- The transfer request is processed online and is mostly completed within 2 working days.
- There is usually a 10‑day cooling period after transfer before the recipient can redeem the units.
Remember, donor and recipient must be KYC compliant and PAN-linked. Also, some funds, especially tax-saving funds with lock-ins, may restrict transfers. So always check fund rules before gifting.
Taxation on Gifting Mutual Fund Units
Gifting mutual fund units is allowed, but both the giver and recipient should know the tax implications.
Donor: No capital gains tax is charged when you gift units, as it’s not treated as a sale.
Gifts to Relatives: Tax-free for spouse, parents, children, siblings, grandparents, grandchildren, in-laws, and lineal ascendants/descendants.
Gifts to Non-Relatives: Taxable if total value exceeds ₹50,000 in a financial year, treated as “income from other sources.”
Capital Gains for Recipient: When the units are sold, tax is calculated from the donor’s original purchase price and holding period, not the transfer date.
Benefits of Gifting Mutual Fund Units
– Wealth Creation: Unlike cash or goods, mutual funds continue to grow over time.
– Tax Efficiency: Gifts to relatives are exempt from tax, and capital gains apply only when units are sold.
– Financial Planning for Loved Ones: Ideal for long-term goals such as education, retirement, or marriage funding.
– Simple and Convenient: Recent SEBI rules allow direct transfers from both demat and non-demat accounts.
– Flexibility: You can gift any number of units across schemes, giving control over investment choice.
Conclusion
Gifting mutual fund units is a modern, tax-efficient, and thoughtful way to transfer wealth, going beyond traditional gifts like cash or gold. With recent SEBI updates, the process has become simpler, faster, and accessible to most investors, whether they hold units in demat or non-demat accounts. By understanding the process, tax implications, and eligibility, you can make gifting a strategic tool to support your loved ones’ long-term financial goals while ensuring the gift continues to grow over time.
If you need any guidance or help with the gifting process, you can connect with Ashvvy Investments for expert assistance and step-by-step support.
