The Smart Way to Gift Mutual Fund Units
Thank you for reading this post, don't forget to subscribe!Gifting mutual fund units is a modern and effective way to transfer wealth and help secure a loved one’s financial future. While it may seem complicated, understanding the process, costs, and tax rules makes it a straightforward financial strategy.
Step 1: Ensure Your Units Are in Demat Form
The golden rule of gifting mutual fund units is that they must be in dematerialised (demat) form. Physical or Statement of Account (SOA) units cannot be gifted during an investor’s lifetime. If your units are not in demat form, you must convert them by submitting a Conversion Request Form (CRF) through your Depository Participant (DP).
How to Transfer the Units
Once your mutual fund units are in demat form, the transfer process is simple and can be done both online and offline.
- Offline Transfer: Fill out a Delivery Instruction Slip (DIS) with the recipient’s demat account details and hand it over to your DP.
- Online Transfer: Log in to your demat account, select the units you wish to gift, enter the recipient’s details, and confirm the transaction.
Understanding Costs and Compliance
Just like any other financial transaction, gifting mutual fund units incurs some charges:
- Transaction Fee: A fee of 0.03% of the transfer value or ₹25 (whichever is higher), plus GST.
- Stamp Duty: A stamp duty of 0.015% is also applicable.
For regulatory compliance, transfers are permitted between demat accounts held under either CDSL or NSDL, the two major depositories in India.
Gifting to Family and Minors
Gifting mutual fund units is an excellent way to plan for your family’s financial well-being.
- Gifting to a Minor: You can purchase mutual fund units in a minor child’s name, with a parent or guardian managing the investment. The child gains full control of the account upon turning 18. This is a popular method for building a corpus for their higher education or other long-term goals.
- Gifting to Relatives: Gifts to close relatives, such as your spouse, children, parents, or siblings, are completely tax-free, regardless of the amount.
Tax Rules to Navigate
While the act of gifting is a generous one, it’s essential to be mindful of the tax implications for the recipient.
- Gifts to Non-Relatives: If the value of the gifted units exceeds ₹50,000, the entire amount is considered taxable income for the recipient.
- Capital Gains: When the recipient sells the gifted units, they are liable for capital gains tax. Crucially, the donor’s original purchase cost and holding period are carried forward, which helps determine if the gains are short-term or long-term.
- Clubbing of Income: Be aware of the “clubbing” provision. If you gift units to your spouse or a minor child, any income or gains from those units will be added to your income and taxed in your hands. However, if you gift to adult children, siblings, or parents, the tax liability falls on them.
In conclusion, gifting mutual fund units is a powerful tool for wealth transfer. By ensuring your units are in demat form and understanding the clear rules regarding costs, compliance, and taxes, you can effectively use your investments to support your loved ones’ financial futures.
