Raksha Bandhan is traditionally associated with gifts, but siblings can also use the occasion to make a long-term financial contribution by gifting mutual fund units. Mutual fund units can be transferred to an eligible sibling through Demat or Statement of Account (SoA) modes, subject to applicable KYC, scheme and account conditions.
The process, however, is different from simply redeeming an investment and transferring the cash. From transfer charges and tax treatment to NRI, minor and SIP rules, investors should understand the conditions before gifting mutual fund units.
How can you gift mutual fund units to your sibling?
According to Manoj Sharma, Co-founder and Head – Alliance & Distributions at InvestValue, mutual fund units can be gifted through both Demat and Statement of Account (SoA) modes.
Since 19 May 2025, eligible SoA-held units can also be transferred to siblings under the applicable framework, meaning investors do not necessarily have to dematerialise their units before transferring them.
Gifting mutual funds through Demat
If the mutual fund units are held in Demat form, the transferor can generally initiate an off-market transfer through the broker or Depository Participant (DP) platform.
The broad process is:
- Log in to the broker or DP portal.
- Select the mutual fund units to be transferred.
- Enter the recipient’s PAN and Demat account details.
- Select the applicable “Gift” or “Off-market Transfer” option.
- Complete the required verification.
- Complete CDSL/NSDL authentication through the applicable TPIN, OTP or other verification mechanism.
The exact process and charges can vary between brokers and DPs.
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Gifting through Statement of Account (SoA)
For eligible SoA holdings, investors can use platforms such as MF Central, CAMS or KFintech, depending on the applicable AMC/RTA facility.
The transfer generally requires the transferor’s folio, scheme and unit details, along with the recipient’s eligible folio and PAN. OTP and KYC authentication may also be required.
The basic information generally required includes PAN/KYC details, folio and scheme information, the recipient’s folio/PAN or Demat details, and a registered mobile number. Where applicable, a Delivery Instruction Slip (DIS) or its online equivalent may also be required.
Shams Tabrej, Co-founder & CEO of Ezeepay, said the recipient generally needs a matching mutual fund folio. If the sibling does not already have one, an eligible zero-balance folio may be opened subject to KYC, PAN, bank details, FATCA information and nomination or opt-out requirements.
What are the eligibility criteria for gifting mutual funds?
Not every mutual fund holding can automatically be transferred as a gift.
Rahul Jain, President & Head at Nuvama Wealth, highlighted several important eligibility conditions:
- The transferor must be an individual, whether resident or non-resident, but cannot be a minor.
- Most open-ended equity, debt, hybrid and multi-asset mutual fund schemes are generally eligible.
- ETFs and solution-oriented schemes, including retirement and children’s funds, are excluded from the newer SoA transfer facility.
- ELSS units can be gifted only after the applicable three-year lock-in has ended for each SIP or lump-sum instalment.
- Units under lien, pledge, freeze or other encumbrances cannot be transferred until the restriction is removed.
- There is no separate minimum holding period required solely for gifting eligible units.
Gibin John, Senior Investment Strategist at Geojit Investments, similarly said that most equity, debt, hybrid and index funds can be gifted, provided the units are free from restrictions such as pledge, lien or lock-in.
Is a Demat account mandatory?
A Demat account is not mandatory in every case.
Jain said Demat-held mutual fund units have been transferable since 2010, with the recipient requiring a Demat account. The newer regulatory framework also permits eligible SoA-to-SoA transfers.
However, investors should check whether the particular AMC/RTA has enabled the applicable SoA transfer facility before initiating the transaction.
Are there any charges for gifting mutual funds?
Gifting mutual fund units can involve transfer-related costs.
According to John, investors may have to pay charges such as DP fees and stamp duty, depending on the mode of holding and transfer.
Sharma said CAMS currently charges 0.015% stamp duty for SoA transfers, with the cost borne by the transferor. Demat transfers may separately attract broker or DP charges.
Both partial and full transfers may be possible, provided the units are eligible. However, investors should check the minimum balance requirement of the scheme before making a partial transfer. If the remaining holding falls below the prescribed minimum balance, compulsory redemption may apply in certain cases.
Does gifting trigger an exit load?
Investors should distinguish between transferring units as a gift and redeeming units.
Tabrej said exit load is linked to redemption. Therefore, investors should not redeem units merely to pass the investment to their sibling unless redemption is actually required.
Sharma also clarified that the 10-business-day cooling-off period applicable after an SoA transfer should not be confused with an exit load. During this period, the recipient cannot redeem the transferred units.
How are gifted mutual funds taxed?
The tax treatment of a mutual fund gift is different from the tax treatment when the recipient eventually sells the units.
Jain said siblings qualify as “relatives” under the applicable income-tax provisions, meaning the gift itself does not create a tax liability for either sibling at the time of transfer.
The recipient becomes liable for capital gains tax when the gifted mutual fund units are subsequently sold.
Importantly, the recipient inherits the donor’s original purchase cost and holding period for determining capital gains.
“The Raksha Bandhan gift date does not reset the tax timeline. When the recipient later redeems the units, capital gains tax is paid by the recipient, based on the donor’s original purchase cost and holding period,” Tabrej said.
This means the recipient should maintain records showing when the donor originally purchased the units and at what cost.
Documents to keep after gifting
Both siblings should retain adequate records of the transaction, including:
- Original purchase statements or transaction records
- Folio and scheme details
- Number of units gifted and transfer date
- Original acquisition cost and purchase dates
- Transfer or gift confirmation
- Capital-gains statements from the AMC/RTA
- Relevant bank and KYC records
Sharma said a gift deed can also be retained as supporting evidence of the transfer.
Can you gift mutual funds to an NRI sibling?
Yes, mutual fund units can be transferred between a resident and an NRI sibling, but additional regulatory and account-related conditions can apply.
Sharma said such transfers are subject to FEMA, KYC and account-type requirements.
He added that CAMS permits NRI folios with “KYC Registered” status. Under the current SoA facility, however, certain account combinations are restricted. Transfers from an RI or NRI-NRO folio to an NRI-NRE folio are not permitted under the stated facility, while NRI-NRE to RI or NRI-NRO transfers may be permitted subject to applicable conditions.
Because NRI transactions can involve additional FEMA and banking requirements, investors should verify the exact account configuration before initiating a transfer.
Can you gift mutual funds to a minor sibling?
Gifting existing mutual fund units to a minor sibling is more restrictive.
Tabrej said the current SoA transfer system does not allow the gifting or transfer option when the destination is a minor folio. CAMS also states that transfers between major and minor accounts are not permitted under the relevant facility.
A minor can, however, hold mutual fund units. In that arrangement, the child remains the unitholder while the parent or legal guardian operates the folio until the child becomes a major.
Sharma noted that existing units cannot be directly gifted to a minor through the standard SoA facility. A fresh investment through the applicable guardian route may therefore be a more appropriate option.
Can SIP units be gifted?
Already-allotted mutual fund units purchased through an SIP can generally be gifted if those units meet the eligibility requirements.
However, the SIP itself cannot be transferred to the sibling. The existing SIP remains connected to the giver’s folio and bank mandate.
If the giver wants to invest regularly for the sibling in the future, the existing SIP would need to be stopped or cancelled, and the sibling can start a new SIP through their own eligible folio and bank account.
“If your goal is to grow a long-term investment for the sibling, it can help to set up a new folio and a separate SIP in the sibling’s eligible name. This way, it is clearer how future payments will be tracked and who owns what,” Tabrej said.
What should you check before gifting mutual funds?
Before initiating the transfer, investors should verify:
- Whether the scheme is eligible for transfer.
- Whether the units are free from lock-in, pledge, lien or freeze.
- Whether the recipient’s PAN and KYC are valid.
- Whether the recipient has the required folio or Demat account.
- Applicable stamp duty, DP or other transfer charges.
- Whether any minimum-balance condition will be breached after a partial transfer.
- Original purchase cost and acquisition date for future tax calculations.
- Additional FEMA and account conditions in case of an NRI sibling.
- Separate arrangements for future SIP investments.
The bottom line
Gifting mutual fund units can turn a Raksha Bandhan present into a long-term financial asset, but the process requires more than simply transferring money to a sibling.
Eligible units can generally be transferred through Demat or supported SoA mechanisms, while tax records, transfer charges, scheme restrictions and recipient eligibility need to be checked beforehand. For NRI or minor siblings, additional conditions may apply, and an existing SIP cannot simply be transferred along with the units.
Before initiating the transaction, investors should verify the latest transfer facility, applicable charges and account requirements with their AMC/RTA, broker or depository participant.
AI Content Disclaimer: This article has been prepared with the assistance of artificial intelligence for research organisation, drafting and language refinement. The information is based on the details and expert inputs provided and is intended for general informational purposes only. Readers should independently verify the latest regulatory, tax and mutual fund rules with the relevant AMC/RTA, SEBI-regulated intermediary or qualified tax professional before taking any investment decision.
