Want to transfer or gift your mutual fund units to a loved one? Here's a step-by-step guide

A popular investment option for individuals looking to achieve financial goals and grow their wealth, a mutual fund is formed when an asset management company (AMC) pools money to purchase securities and appoints a fund manager to make investment decisions. Participants are given units corresponding to their investment sum, for which purchase and sale are at the latest net asset value (NAV).

You can begin investing in mutual funds with small sums via a systematic investment plan (SIP) or a lump sum, in line with your financial goals. Notably, since MFs are a market-linked instrument, there are varying levels of risk attached based on the type of scheme. It is advisable to read the terms carefully before investing.

Investing in mutual funds is considered one of the best investment decisions for an ordinary investor looking to book capital gains in future. Also, since they have a long-term horizon of 5-15 years with guaranteed financial security, mutual fund transferability is a necessary process.

Want to transfer MF units to a demat account? Stepwise guide

MFs are not easy to transfer, but you can use your demat account to gift your units to loved ones by following the process below. For this, you first need to convert your MF units into demat format and then follow the steps:

• Log in to your demat account online.
• In the mutual funds section, select the transfer option.
• Choose the fund and then the number of units to transfer.
• Select which demat account you want to transfer the units to.
• Check all details and click on submit.

If you prefer to do this offline, follow these steps:

• Visit your depository participant (DP) for a Conversion Request Form (CRF).
• Submit the duly filled form with a copy of your MF account statement to the DP
• The transfer will be processed by the DP with the fund house's registrar.

Will I be charged any fee?

A transaction fee of 0.03% of the transfer value or ₹25 (whichever is higher) and GST of 18% will be imposed for the transfer of MF units.

Besides this, there is also payment of stamp duty of 0.015% applicable for all transfers.

What is ‘transmission’ of mutual fund?

The only practice for this is when the original investor has passed away and is known as “transmission” of mutual funds. In such cases, the MF units are transferred to a surviving family member, joint holder or legal nominee, as per Clear Tax.

For transfer to the nominee or joint holder, Securities and Exchange Board of India (SEBI) rules dictate submission of legal documents — death certificate, letter from co-holder, KYC of nominee, indemnity bond if amount exceeds ₹1 lakh, and approval to register the nominee's bank account.

What taxes will you pay?

Gifting MF units is taxable under the ‘Income Tax Act’. But there are exemptions.

• Gifts from to and from family (spouse, parents, children, siblings, and linear relatives) are fully exempt irrespective of the amount involved. This also applies to gifts given for marriage and as inheritance.
• Further, if MF units are gifted to non-relatives (friends and other third parties) and if the value of such a gift exceeds ₹50,000, the entire amount is taxable in the hands of the receiver.
• The gift must be declared under Section 56(2)(x) of the Income-Tax Act. On your ITR form this will come the head “Income from Other Sources.”

• If the recipient sells the gifted MF units later, it will attract capital gains tax. The cost and holding period of the donor will also be considered for capital gains tax.
• Any income or gains generated from MF units gifted to a minor child or spouse will be taxed in the hands of the donor.
• But if the gift sold was given to parents, adult children and siblings, then it will be taxed in the receiver's hands.

Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.