Mutual Fund Gifting in India: How To Gift Units Safely & Save Tax

Giving mutual funds as gifts is slowly becoming as common as gifting gold coins at Diwali, and thanks to SEBI’s latest tweak, it has become far easier and more tax‑efficient than before. For high‑earning families, mutual fund gifting can be a powerful way to transfer wealth, optimise tax, and build a lasting investment culture at home.  

What SEBI has changed recently 

SEBI has now allowed the transfer / gifting of mutual fund units in both the demat and Statement of Account (SOA) form, instead of restricting transfers largely to demat units earlier. This means you do not have to redeem SOA units and re‑invest in the recipient’s name, so you avoid triggering unnecessary capital gains tax at the point of gift.  

Fund houses and RTAs have been asked to put in place systems that allow such transfers in a standardized, digital manner, like how off‑market share transfers work between demat accounts. Of course, units under lien, freeze, or lock‑in (ELSS within lock‑in, etc.) generally cannot be transferred. 

What a mutual fund gifting works in practice 

For demat units, gifting usually happens as an off‑market transfer from your demat account to the recipient’s demat account, with a small DP fee and stamp duty (for example, about 0.03% or ₹25, whichever is higher, plus GST, and stamp duty around 0.015%). For SOA units, SEBI’s new framework allows transfer via the registrar / AMC once both donor and recipient complete prescribed forms, KYC and folio details.  

You can also use mutual fund gifting in succession planning: SEBI’s framework helps in smooth transfer through Will, inheritance and change of joint holders without forced redemption. For minor children, units can be held in the child’s name through a guardian, based on SEBI’s circular on investments in the name of minors. 

Tax rules on gifting mutual funds 

Under the Income Tax Act, you can gift mutual fund units to specified relatives (spouse, children, parents, siblings, etc.) without paying tax on that gift as income, either in your hands or in the recipient’s hands at the time of gifting. The tax event arises only when the recipient later sells the units, and then the tax department calculates capital gains using your original purchase cost and your holding period.​

When you gift units to your spouse or minor child, clubbing rules under Section 64 apply, so the law can tax any income or capital gains from those units in your hands, after allowing a small exemption for minor children. When you gift to adult children, parents or siblings, clubbing usually does not apply, so the tax department taxes gains in their hands, which can help if they fall in a lower slab or qualify for the Section 87A rebate.

Smart uses of mutual fund gifting 

Families in higher tax brackets can shift some appreciated debt or equity mutual fund units to adult family members with low or nil income, so that future gains utilise their basic exemption and 87A rebate and reduce the overall family tax outgo. Wealth transfer to the next generation also becomes smoother, since mutual funds are easy to track, split, and consolidate compared to physical property or jewelry.  

Mutual fund gifting works well as a goal‑based gift: SIPs or units earmarked for a daughter’s higher education; You can gift units for a son’s first house or parents’ retirement top‑up instead of cash, so the gift itself continues to grow with markets.Practically, you can mark specific folios for each family member and use the new transfer facility as life events come up.  

Aspect	What works in your favour	What to watch out for
At‑gift taxation	No capital gains tax at the time of gifting relatives; gift is not treated as a taxable transfer.	Gifts to non‑relatives may be taxable in recipient’s hands if value crosses the specified threshold.
Execution	Direct transfer of both demat and SOA units without redemption, which saves time and tax.	Units with lock‑in, lien or freeze usually cannot be transferred; processes differ slightly across RTAs / AMCs.
Future capital gains	Recipient gets your purchase cost and holding period, which preserves long‑term status and indexation benefits where applicable.	If you give a gift to your spouse or minor child, clubbing rules can bring gains back into your own tax return.
Costs and charges	Only nominal DP transfer fees and stamp duty on demat transfers.	Operational errors in folio / PAN / KYC can delay transfer, so documentation must be clean.

Before gifting, a simple checklist helps: confirm KYC and bank details for the recipient, check folio and mode (demat or SOA), verify that units are free of lock‑in, and document the gift through a basic gift deed for family records. In real life, that means sitting with your CA or adviser once a year, just like you would sit with your family to decide how much gold or property to set aside. 

To sum up, Think of mutual fund gifting as pointing your family’s financial compass towards long‑term wealth and better tax efficiency, instead of one‑time, consumption‑heavy gifts. You can start small: gift a carefully chosen flexi‑cap or index fund to each child for every birthday, track it together, and slowly hand over responsibility as they grow, which builds both wealth and discipline.  

At Maxiom Wealth, the preferred approach is to view such gifting as part of a larger family wealth blueprint where asset allocation, risk and goal timelines are all aligned across generations. We provide and assist this mutual fund gifting smoothly.