Can mutual fund units held in non-demat form be gifted or transferred?

Many investors hold mutual fund units in Statement of Account (SoA) format instead of demat and are unsure how to transfer or gift them. Today’s Ask Wallet Wise query decodes whether one can gift SoA mutual fund units to family members.

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My mother has some investments in mutual funds which are held in statement of account (SoA) format and not in demat. She wants to gift her investments equally to all her children while keeping some for herself. Please let me know what is the process and the most tax-efficient method. Will the transfers be taxable, and if so, will it be taxed in her hands or her sons’? Does she need to execute a gift deed for each of her children?

Expert advice: Earlier, mutual fund investments held in demat form could be transferred to anyone but units held in SoA format were not transferable during the lifetime of the holder. However, the rules have now changed and mutual fund investors can gift or transfer units held in non-demat mode (SoA format). This facility is available across all mutual fund schemes except Exchange Traded Funds (ETFs), SEBI guidelines say.

The transfer can be carried out for various purposes, including gifting. Mutual fund units can be transferred online through the registrars and transfer agents — CAMS and KFin Technologies —using the following links: https://digital.camsonline.com/transfer, https://mfs.kfintech.com/transferofUnits/.

There is a cooling period of 10 days between the date of transfer and the date of redemption. Partial transfer of units from a folio is also permitted under this facility.

Since your mother intends to gift a portion of her mutual fund investments to her children, the transaction will not have any tax implications for either party. Gifts received from specified relatives, including parents, are fully exempt under Section 56(2)(x) of the Income Tax Act.

A formal gift deed is not mandatory but it is advisable to keep a covering letter signed by your mother stating her intention to gift the specified number of units of each mutual fund scheme. Each recipient should also sign in acknowledgment of having received the gift for the purpose of record.

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions

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