Gifting Mutual Funds in India: Tax Rules & Easy Process

When we think of gifting something valuable and meaningful, mutual funds might not be the first idea that comes to mind—but they should be! In India, gifting mutual funds is not only allowed, but it's also a smart way to help your loved ones grow wealth over time. But like all financial activities, it comes with a few rules and tax implications.

Let’s break it down in a simple way:

✅ Can You Gift Mutual Funds in India?

Yes, you can gift mutual fund units in India.

Whether it's for a birthday, wedding, child’s education, or any special occasion, gifting mutual funds is a thoughtful gesture. However, there’s no direct feature like "Gift this mutual fund" on most apps. The process is done via offline transfer of units or through demat accounts.

📋 Rules for Gifting Mutual Funds

Here are the key rules you need to follow:

1. Both Must Have Folios / Demat Accounts

• Giver (Donor) and Receiver (Donee) must both have mutual fund accounts (folio number) or demat accounts, preferably with the same fund house.

2. KYC Compliance

• Both parties must be KYC verified with valid PAN and address proof.

3. Use Transfer Form

• The donor fills out a unit transfer form with signatures of both parties and submits it to the AMC or RTA (like CAMS/KFintech).

4. Joint Holding Caution

• If the units are in joint holding, all holders must sign and agree to the transfer.

💰 Taxation on Gifted Mutual Funds

Gifting mutual funds has tax rules you need to be aware of.

1. For the Giver:

• No capital gains tax at the time of gifting.
• But if the gift is part of a larger estate planning, consider gift deed documentation.

2. For the Receiver:

• Gifts from relatives (parents, spouse, siblings, etc.) are not taxable.
• Gifts above ₹50,000 from non-relatives in a financial year are considered taxable income under “Income from Other Sources.”

3. On Future Redemption:

• If the recipient later sells the mutual fund units:
  • Capital gains tax applies.
  • The original holding period is considered (from when the giver bought it) to decide between short-term or long-term capital gains.
  • This could be beneficial for long-term gains with indexation benefits.

🔁 How to Gift Mutual Funds – Step-by-Step Process

🪪 If You Both Have a Demat Account:

1. Initiate an off-market transfer via a DIS (Delivery Instruction Slip).
2. Submit the DIS to your depository participant (like Zerodha, Upstox).
3. The recipient receives the units in their demat account.

📝 If You Have Physical Units (Non-Demat):

1. Get a unit transfer form from the AMC or RTA.
2. Fill in both parties' details and signatures.
3. Submit the form to the AMC office or RTA branch.
4. Units get transferred in 5-10 working days.

🎁 Best Use Cases to Gift Mutual Funds

• For children’s education or marriage.
• As a wedding gift for newlyweds.
• Birthday gifts for young investors.
• As a long-term investment to encourage financial literacy among loved ones.

🧠 Final Thoughts

Gifting mutual funds is a powerful way to share wealth and wisdom. It not only shows care but also encourages saving and long-term planning.

📌 Just remember:

• Keep it documented.
• Understand the tax angle.
• Make sure the recipient is financially aware or guided.

Mutual fund investments are subject to market risks, but a well-thought gift can grow into something beautiful with time.

🙋‍♂️ Need Help?

Want to gift a mutual fund but unsure how to go about it? Connect with us at Chaubey Financial Services. We’ll guide you through the entire process—smartly and securely.