Gifted Mutual Funds to Daughter - Do I Need a Gift Deed?

Ans: Hello,

Your mother's intention to distribute her investments among her children is a thoughtful gesture. Here's a simple explanation of the process and its tax implications in India.

1. Gifting Process: Your mother can gift her shares and mutual funds to her children. This can be done through a gift deed or even a simple letter stating her intention to gift the shares. The letter should mention the details of the shares/mutual funds, the name of the recipient, and the relationship between the donor (your mother) and the donee (her children).

2. Tax Implications for the Donor (Your Mother): In India, any gift given by a parent to their child does not attract any tax, irrespective of the value. So, your mother will not have to pay any tax when she gifts these shares and mutual funds to her children.

3. Tax Implications for the Donee (Her Children): The children will not have to pay any tax upon receiving the gift. However, if they decide to sell these shares or mutual funds in the future, they will be liable to pay tax under the head 'Income from Capital Gains'. The tax rate will depend on whether it's a short-term or long-term capital gain.

4. Gift Deed: Although it's not mandatory, it's advisable to execute a gift deed for each child. This will serve as a legal document and can be useful in case of any disputes in the future.

I hope this helps!

Ans: Mutual fund units cannot be gifted or transferred as per the Securities and Exchange Board of India’s (SEBI) regulations, 1996.
This means you cannot gift the mutual fund units to your son. If you have written a gift deed for the gifting mutual funds, it is null and void in the eyes of law as the transfer is not allowed.

The only situation in which a transfer is allowed from one person to another is upon the death of the primary holder of the mutual fund. In such a situation, required person must be registered as a Second holder or nominee in the investment. You can also write a will with the necessary details for gifting the mutual funds to your son after your death.

If you wish to gift some mutual funds to your son at present, you have to first redeem your mutual fund investment and then provide the amount to your son for the investment.

Ans: Demat account transfer can be done off market. Please seek documents from your broker for the same.

Kindly state the reason as gift to relative while transferring. No taxation on gift.

Please take your CAs advice before moving ahead.

Ans: Unfortunately, you cannot directly transfer a mutual fund from your name to your wife's name. Mutual fund units are typically linked to the investor's PAN card and cannot be easily transferred to another person.  

Alternative Options:
Redemption and Re-investment:

You can redeem the mutual fund units in your name.  
Transfer the money to your wife's account.
Your wife can then invest the money in new mutual fund units in her name.
Gifting the Money:

You can gift the money equivalent to the mutual fund value to your wife.
She can then invest the gifted amount in mutual funds.
Tax Implications:
Redemption and Re-investment:

If you hold the mutual fund units for more than a year, the capital gains are generally long-term and taxed at a concessional rate.  
If you hold the units for less than a year, the capital gains are short-term and taxed as per your income tax slab.  
The income earned by your wife on the new mutual fund investment will be taxed in her hands.
Gifting the Money:

There is generally no gift tax in India, so gifting money to your spouse is usually tax-neutral.  
The income earned by your wife on the mutual fund investment will be taxed in her hands.
Important Considerations:

Gift Tax Laws: While there is no gift tax in India, certain conditions and limits might apply in specific cases. It's advisable to consult a tax professional for detailed guidance.
Income Tax Implications: The taxability of the mutual fund income will depend on factors like the holding period, type of fund, and individual tax slabs.
Financial Planning: Consider your overall financial goals and risk profile before making any decisions.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in