Gift Mutual Fund Units to Your Kids Tax-Free: Complete Online Guide

Parents can now gift mutual fund units to their children online without selling them or paying immediate capital gains tax.

The process is simple, convenient, and can be done through a child’s demat account or mutual fund folio. Recent reforms by SEBI have made the process much easier. Units can now be transferred “off-market,” meaning they don’t need to be sold, helping parents avoid triggering capital gains.

Option A: Units Held in Demat Form

If your mutual funds are in a demat account (through platforms like Zerodha, Groww, or ICICI Direct):

Obtain a DIS – Get a Delivery Instruction Slip from your broker.

Fill Details – Enter your child’s Demat account information (DP ID and Client ID).

Submit Slip – Provide it to your broker. A small off-market transfer fee (around ₹25 or 0.03% of the value) plus stamp duty applies.

Acceptance – Your child may need to approve the transfer through their own demat portal.

Option B: Units Held in Physical/Statement of Account (SoA) Form

Earlier, physical units had to be converted to demat first. Now, transfers can be done directly through RTAs like CAMS or KFintech:

• Login to RTA/MF Portal – Access platforms like MF Central, CAMS, or KFintech.
• Select ‘Gift/Transfer’ – Enter your child’s PAN and folio number (or create a new folio if needed).
• OTP Verification – Both parent and child must authorize via OTP.
• Pay Stamp Duty – A small fee (typically 0.015%) completes the transfer.

Tax Implications

Gift Tax: No tax applies when gifting units to children, as they are considered “relatives” under Section 56(2) of the Income Tax Act.

Clubbing Rule: If the recipient is a minor, income or gains from the units are added to the parent’s income and taxed accordingly. For children over 18, this rule does not apply.

Cost of Acquisition: When the child sells the units in the future, the acquisition cost is the original purchase price, and the holding period starts from the date you initially bought the units.

With these new SEBI rules, gifting mutual fund units has become faster, simpler, and tax-efficient, making it easier for parents to plan wealth transfer for their children.