Mutual fund investors can gift units by transferring ownership directly from their folio to another person's account, maintaining the investment's integrity without requiring redemption. According to reports from Business Standard, this process involves submitting a transfer request to the asset management company (AMC) or registrar and transfer agent (RTA), such as CAMS or KFin Technologies. The form requires details including the donor's folio number, recipient's folio details, number of units to be transferred, and signatures of both parties. The recipient becomes the new owner responsible for future taxation when they eventually redeem the units.
The recipient must have a mutual fund account with completed KYC compliance, and if they don't have an existing folio, a new one may need to be created before the transfer. As reported by Business Standard, the process involves submitting physical forms and supporting documents, as most mutual fund platforms don't allow simple online transfers. The AMC may require identity and relationship-related documents depending on the case, and once documents are verified, the units move from the donor's folio to the recipient's folio without paying out the market value during the process.
The tax treatment depends on the relationship between donor and recipient and the gift value. According to Business Standard, gifts from certain relatives including spouse, parents, children and siblings are generally exempt from tax under income tax rules. However, if mutual fund units are gifted to non-relatives and the value exceeds the prescribed threshold, the recipient may face tax implications. The recipient inherits the original purchase cost and holding period of the donor, meaning capital gains calculation considers the earlier purchase history if the donor held the units for several years.
Many investors consider redeeming units and gifting cash instead, but this approach can trigger capital gains tax if the investment has appreciated and interrupt long-term compounding, especially in equity mutual funds. As reported by Business Standard, direct transfer of units can be useful when the intention is to pass on an existing investment rather than exit from it. For example, a grandparent wanting to create long-term wealth for a grandchild may prefer transferring units instead of selling investments and transferring cash, provided the recipient can manage the investment.
Before gifting mutual fund units, investors should check lock-in restrictions for schemes like equity-linked savings scheme (ELSS) mutual funds, which may have mandatory lock-in periods. According to Business Standard, if the folio has multiple holders, all required holders may need to provide consent, and investors should maintain transfer forms, acknowledgement receipts and valuation details for future tax records. The recipient should understand the investment before accepting ownership, as mutual fund gifting involves ownership, taxation and documentation that require careful completion rather than treating it as a simple money transfer.
