Regulatory tweak by Sebi makes mutual fund gifts easier, cheaper and tax-efficient

Synopsis Sebi’s new rules now allow easy transfer of both demat and SOA-based mutual fund units, eliminating the need to redeem and repurchase. This simplifies gifting and inheritance and can significantly reduce capital gains tax, enabling families to shift MF units to low-income members and benefit from Section 87A rebates. A recent Sebi rule change has made gifting mutual fund units simpler, potentially helping millions of investors save a significant amount in taxes, as reported by the Times of India. According to the tax experts, the reform, which now allows transfer of even statement of account (SOA) based MF units and not just demat units, removes the biggest hurdle in gifting, inheritance and joint holding of mutual fund assets. Also Read | Investing from abroad? How to reach Rs 2 crore with Rs 10,000/month SIP in 15 years Best MF to invest Looking for the best mutual funds to invest? Here are our recommendations. View Details » Until now, investors could give only dematheld MF units; all others had to be redeemed and repurchased, triggering avoidable capital gains tax, TOI reported. With the new rules, investors holding large mutual fund gains can simply transfer units to a family member — usually a parent or adult child with low or no income — and the resulting gains may even fall fully under the Section 87A tax-rebate limit. Live Events International tax expert Mukesh Patel called it a long-awaited and welcome reform. Mukesh Patel told TOI, “If an individual has a Rs 10 lakh gain and gifts those units to an adult son or daughter who has no income, the entire gain can effectively be tax-free. Mutual funds have emerged as a key asset for Indian families, but gifting or inheritance processes were archaic.” Patel further said that, “Even dematheld MF units could not be transferred in cases of inheritance or succession, forcing families to redeem and incur tax. If the head of a family passed away and his MF units were to be distributed between his two sons, there was no option but redemption.” Sebi’s new framework allows investors to easily gift or transfer both demat and SOA units — be it through a Will, inheritance, or by adding/removing joint holders. Patel added that the provision opens a straightforward tax-planning route. A person in a higher tax bracket can transfer MF units to an adult family member with little or no taxable income. Thanks to Section 87A, capital gains on debt funds up to Rs 12 lakh can now be taken completely tax-free. A financial adviser, Mumukshu Desai, told TOI that the impact has been immediate. “The decision has been in the pipeline since April, and in the last 20 days alone, we’ve already handled four to five cases. Earlier, gifting mutual funds was theoretically permissible under income-tax rules, but practically impossible without selling the units. You had to sell and repurchase, and pay capital gains tax, just to execute a gift,” he said. “Now, with just a link and two OTPs, it’s done.” Also Read | Best mutual fund SIP portfolios to invest in December 2025 Desai recalled instances where people sold their mutual fund holdings during marriages or festivals like Raksha Bandhan just to give money to siblings or children. “Now they can simply gift the units themselves. No sale, no exit load, no tax. You can add a holder, remove a holder, or include a parent or child with ease. The entire hassle of withdrawing units just to change the holding pattern has disappeared,” he added. (Catch all the Mutual Fund News, Breaking News, Budget 2024 Events and Latest News Updates on The Economic Times.) Subscribe to The Economic Times Prime and read the ET ePaper online. ...moreless (Catch all the Mutual Fund News, Breaking News, Budget 2024 Events and Latest News Updates on The Economic Times.) Subscribe to The Economic Times Prime and read the ET ePaper online. ...moreless Nerves of steel: The slump has stabilised, but recovery remains elusive The pipeline reform that may redraw India’s energy map in favour of private cos AI is forcing a rethink. Can Indian IT finally build a serious corporate VC muscle? Why Leyland and Iveco stand between Tata Motors' return to glory Stock Radar: Coromandel International stock showing signs of rebound; check target & stop loss ET Prime Special Series - Part 6: Management’s application of altered accounting rules, some right… some wrong 1 2 3