This Diwali, you can now gift mutual fund units to your loved ones, even without a demat account. Units can be transferred directly from the fund house. This is not only a wise investment gift but, according to tax rules, such gifts given to close relatives are also exempt from tax.
Mutual Funds: If you wish to give a thoughtful gift to your loved ones this Diwali, gifting mutual fund units is an excellent option. Now, a demat account is no longer required for this; you can gift units directly by filling out a transfer request form through the fund house or its registrar. This process only requires KYC for both the gifter and the receiver. Gifts given to close relatives are tax-exempt, whereas non-relatives might have to pay tax on values exceeding ₹50,000.
No Demat Account Required Anymore
Previously, gifting mutual funds required a demat account or the assistance of a broker. However, this hassle has now been eliminated. Investors can directly gift mutual fund units to their loved ones from the fund house (AMC) without any demat account. This method is particularly useful for those who want to start investing but wish to avoid complex procedures.
How to Gift Mutual Funds
If you wish to gift mutual fund units to someone, you first need to submit a transfer request form to the fund house or its Registrar and Transfer Agent (RTA). In this form, you will need to fill in your folio number, scheme name, number of units, and the PAN, KYC, and bank details of the person to whom you are gifting the units.
After submitting the form, the fund house verifies your request. Once all documents are found to be correct, the units are directly transferred to the receiver's folio. Both the gifter and the receiver are sent a statement of this transaction to prevent any issues in the future. This entire process does not require a demat or trading account.
Who Can Receive Mutual Fund Gifts
You can gift mutual fund units to your family members such as spouse, parents, children, siblings, or any close relative. Many people adopt this method to instill investment literacy in their children from a young age. This helps children develop financial discipline and the habit of saving.
Tax Rules on Gifts
Gifting mutual fund units is entirely legal, but it's important to understand the tax rules. If you give this gift to your 'close relatives,' i.e., parents, siblings, spouse, or children, no tax is levied on it. However, if you gift these units to a friend or a distant relative, and their total value exceeds ₹50,000, the receiver will have to add that amount to their income and pay tax on it.
Furthermore, when the recipient of the gift eventually sells those units, capital gains tax will be applicable. This tax will depend on how long the units were held and their purchase price. If the units are sold within three years, Short-Term Capital Gains (STCG) tax will apply, while holding them for more than three years will incur Long-Term Capital Gains (LTCG) tax.
Transfers Not Possible in Some Funds
Be aware that some mutual fund schemes, such as ELSS (Equity Linked Saving Schemes) or closed-ended funds, have a lock-in period. During this period, units cannot be transferred. Therefore, always check the scheme's terms and conditions before gifting.
Easy and Affordable Method
Non-demat transfer is an easy and affordable way to gift mutual funds. It involves no broker fees and requires no additional documents. This method is also excellent for fostering investment habits. On occasions like Diwali, when people offer good wishes and blessings of prosperity to their loved ones, gifting mutual funds can also provide them with the gift of financial security.
