How can parents gift mutual fund units to their children?

Mutual Funds

• Parents can gift mutual fund units to children with a fund house folio.
• Online transfer via CAMS/KFintech has a 10-day cooling period.
• No tax is levied on such gifts under section 56(2)(x) of the Income Tax Act

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Parents are legally permitted to gift mutual fund units to their children under the Income Tax Act. Today’s Ask Wallet-Wise explains the importance for the recipient to have a folio with the same fund house to make the transfer online.

I would like to know whether I can gift my existing mutual fund units to my son on his birthday. If so, what is the procedure for gifting, and what tax implications would apply to my son?

Expert’s Advice: There are no legal restrictions on the gifting of mutual fund holdings from parents to their children as per section 56(2)(x) of the Income Tax Act, 1961. Mutual fund holdings held in a demat account were always transferable from one demat account to another demat account.

Earlier, mutual fund investments held in Statement of Account form faced certain operational limitations. Following an AMFI circular directing fund houses to enable such transfers, all mutual fund houses, through their registrars, have now allowed online transfer of units held in this form.

CAMS and KFintech, the two registrars collectively serving all mutual fund houses, now allow investors to transfer either full or partial holdings from one individual to another, including as a gift.

To gift mutual fund investments to your son, he must hold a folio in his name with the same mutual fund house. Currently, the gifting facility is available only online and must be initiated through the CAMS or KFintech website, depending on the registrar of your holdings.

Please note that a 10-day cooling period applies, during which your son cannot redeem or transfer the gifted mutual fund units. If the units are held in a demat account, they can be gifted by issuing a transfer instruction, similar to transferring funds between bank accounts using a cheque.