Think about the last time you wanted to do something genuinely meaningful for a family member financially. Maybe you wanted to transfer a portion of your mutual fund portfolio to your adult child who is just starting out. Or pass on some units to your spouse as part of longer-term planning. Or simply give your parents something that would grow over time rather than sit in a savings account.
For a long time, doing any of this cleanly was next to impossible. Not because it was illegal, but because the process was so expensive and cumbersome that most investors simply gave up.
That has now changed, thanks to a significant regulatory move by SEBI.
If you held your mutual funds in the standard Statement of Account (SOA) format, which is how the vast majority of retail investors in India hold their funds, there was no direct way to transfer units to another person. The only route available was a painful three-step workaround.
First, you would redeem your units, which triggers capital gains tax. Then you would transfer the cash to your family member. Then they would reinvest in their own account, often at a different NAV, with a fresh purchase date that wipes out years of holding period.
You lost money to exit loads. You paid tax on gains you had not actually realised in any meaningful sense. And the recipient lost the benefit of your original purchase date for future long-term capital gains calculations. It was, in short, a system that penalised families for trying to plan together. Only investors who held their mutual fund units in demat form could transfer them directly, through an off-market transfer process. But that was a small minority of retail investors.
SEBI's new framework allows both demat-held units and SOA-held units to be transferred directly between investors, without any mandatory redemption. No exit load. No forced capital gains trigger at the point of gifting. No starting over.
This change has been in discussion since April 2025 and is now being actively implemented by fund houses and Registrar and Transfer Agents (RTAs) like CAMS and KFintech. Transfers are being processed online in a matter of days.
For the millions of Indian families who have built up meaningful mutual fund portfolios over the years, this is genuinely good news.
Any individual investor holding mutual fund units, whether in demat or SOA form, can now gift them to another person. There are a few conditions to keep in mind before you start.
• Both the person gifting (the donor) and the person receiving (the recipient) must be fully KYC-compliant.
• Their PAN must be linked and verified.
• If the recipient does not already have a folio with the mutual fund company, they can open a zero-balance folio specifically to receive the gifted units. AMCs now allow this.
• The units being transferred must be free of any lock-in, pledge, or freeze. Units in ELSS schemes that are still within the three-year lock-in period cannot be transferred. Units pledged as collateral for a loan cannot be moved until the pledge is released. Any attempt to transfer such units will simply be rejected.
The process differs slightly based on how you hold your units.
This is the most common route for retail investors and, thanks to SEBI's new rules, it is now fully digital.
1. Log in to the RTA portal. You can use myCAMS at camsonline.com, KFintech at mfs.kfintech.com, or MF Central at app.mfcentral.com.
2. Look for the "Gift/Transfer Units" option under service requests. Enter the recipient's details accurately. Their PAN, folio number, and KYC-registered information must match exactly. Even small mismatches will cause the transfer to fail.
3. Select the scheme and specify how many units you want to transfer. Partial transfers are allowed, so you do not have to move everything at once.
4. Both the donor and the recipient will need to complete OTP verification on their registered mobile numbers. Once that is done, submit the request.
5. The RTA verifies the details, confirms the units are free of any encumbrances, and processes the transfer. You will both receive confirmation via email and SMS.
Processing typically takes T+2 working days from the date of submission.
If you prefer to handle this through your mutual fund distributor, advisor in person or by post, that option exists too.
1. Download the Transfer Request Form from your AMC or the RTA website.
2. Fill in the donor's folio details, the recipient's folio details, the scheme name, and the number of units. Both parties need to sign.
3. Attach KYC documents for both individuals, including PAN card and address proof.
4. While a gift deed is not always mandatorily required by the RTA at the online stage, for offline transfers and for your own records, a notarised gift deed is strongly advisable. It should mention the scheme, folio numbers, number of units, and the relationship between the two parties.
5. Submit the completed set of documents to the nearest CAMS or KFintech Service Centre, or directly to the AMC's office. Offline processing can take between 7 and 15 working days.
If your mutual fund units sit in a demat account with NSDL or CDSL, the transfer follows the standard off-market route that demat investors are already familiar with.
1. Collect a Delivery Instruction Slip (DIS) from your Depository Participant (your broker or bank).
2. Fill in the recipient's demat account details and mark the transaction type as a gift rather than a sale. Submit it to your DP, who will debit the units from your account and credit them to the recipient's.
A small DP fee applies, typically around Rs. 25 or 0.03% of the value, whichever is higher, along with GST. Stamp duty of approximately 0.015% of the market value of the units being transferred also applies.
Once a transfer is executed, it cannot be reversed. The gift is final the moment it is processed. Make sure you are certain before you submit.
There is also a 10-calendar-day cooling-off period after the transfer is completed. During this window, the recipient cannot redeem the units. This is a SEBI safeguard introduced to prevent misuse of the gifting mechanism. If the recipient needs liquidity quickly, factor this into your timing.
This is where the real financial benefit of SEBI's reform becomes clear. Understanding the tax rules will help you plan this properly.
Under Section 47(iii) of the Income Tax Act, transferring a capital asset as a gift is not treated as a "transfer" for capital gains purposes. In plain terms, this means you do not pay any capital gains tax at the time of gifting, even if your units have grown significantly in value over the years. There is no exit load either, because there is no redemption involved.
If the gift comes from a relative as defined under Section 56(2) of the Income Tax Act, the recipient pays no income tax on it, regardless of how much the units are worth. The law defines relatives broadly to include your spouse, children and their spouses, parents, brothers and sisters and their spouses, and lineal ascendants and descendants such as grandparents and grandchildren.
When the recipient later sells the units, capital gains tax will apply. But the cost of acquisition used is not the NAV on the date the gift was received. It is the original purchase price paid by the donor. Similarly, the holding period does not start fresh from the date of the gift. It carries forward from the donor's original date of purchase.
This is enormously meaningful in practice. Say a parent bought equity mutual fund units in 2018 and gifts them to their adult child in 2025. The child's holding period is already more than seven years old. When the child eventually sells, those gains are treated as long-term capital gains and taxed at 12.5%, not the short-term rate of 20%.
The ability to transfer units without redemption opens a genuinely useful planning window. An investor in a higher tax bracket can gift units to an adult family member with little or no taxable income, reducing the family's overall tax outflow on eventual redemption.
However, one important update for FY 2025-26: the Section 87A rebate, which allows individuals with income up to Rs. 12 lakh to claim a full tax refund, no longer applies to equity mutual fund long-term capital gains. Equity LTCG and STCG are special-rate incomes that fall outside the rebate. The strategy still works well for debt fund gains and other income within normal slab thresholds, but speak with your CA before executing it for equity fund transfers. Also keep in mind that income earned on units gifted to a minor child, or on units gifted to a non-earning spouse, will be clubbed with the donor's income under Section 64 of the Income Tax Act, until the child turns 18. This does not make gifting to children or a spouse wrong, it just means the tax benefit on ongoing income accrues only once the child is an adult.
Before starting the process, it helps to run through these basics.
Confirm that both you and the recipient are fully KYC-compliant and PAN-linked. Verify that the recipient has a folio with the same AMC, or open one if needed. Check that the units you want to transfer are not under any ELSS lock-in, pledge, or regulatory freeze. Keep a record of your original purchase date and cost, as these carry forward to the recipient for future capital gains calculations. Prepare a basic gift deed for your own records, even if the online portal does not ask for it. And if you are transferring units to a non-earning spouse or a minor, talk to your CA about clubbing provisions first.
Building your child's financial future while they can see it grow - A parent who has been investing in a flexi-cap fund since 2017 can now transfer those units directly to their 22-year old who is starting their career. The child inherits the eight-year holding period and the original (lower) cost, pays far less LTCG when they eventually sell, and gets to start their financial life with a meaningful, productive asset.
Cleaning up estate planning while you are still around - Instead of waiting for inheritance processes to kick in after death, you can now allocate specific folios to specific family members during your lifetime. This sidesteps the need for a transmission request later, which requires death certificates and legal heir certificates and can take months.
Helping parents redeem more efficiently - If you have parents in a lower tax bracket, transferring appreciated units to them before redemption can reduce the family's capital gains tax on those units significantly, especially for debt funds where slab-rate taxation applies.
Succession planning across generations - Business families and wealth builders can now use mutual funds as part of a formal succession plan, transferring corpus across generations in a structured, documented, and tax-efficient way.
It is easy to frame this purely as a tax planning tool, and it is a very good one. But step back and the bigger picture is worth acknowledging. For the first time, mutual fund units can be passed within a family the way gold or a fixed deposit or a piece of property always could. You can hand over something you built over years, intact, without a tax toll booth at the gate. For investors, it means the discipline of decades of SIPs and lump-sum investments can now become a living gift, not just something left behind in a will.
If you have been investing with your family's future in mind, you now have a real mechanism to act on that intention.
Wizr Wealth Private limited is an AMFI registered Mutual Fund Distributor, ARN-176986. This article is for informational and educational purposes only and does not constitute investment or tax advice.
