An investor who is looking to book future gains is often advised to invest in mutual funds. Investing in mutual funds provides the financial security required for the well-being of one’s life. Investors new to the investing world often have several queries related to mutual fund investments. One such query is regarding the transferability and gifting of mutual funds to another owner. In this article, we’ll discuss the technicalities and feasibility associated with this topic in detail.
Transmission or transfer of mutual funds
In the event of an untimely demise of a fundholder, the fund units are transferred to the next surviving member or nominee. This is known as the transmission of mutual funds. Conversely, when all the fund holders are alive, a transfer takes place. So can you transfer mutual fund units?
- The transfer of mutual fund units is a grey area as the Indian markets watchdog – SEBI (Securities and Exchange Board of India) regulations allow an investor to transfer their mutual fund units. However, fund houses often do not allow all the unitholders to transfer their mutual fund units. The reason being that as mutual funds enjoy great liquidity, there is no point of transferring fund units.
- One should also note that the transfer of mutual funds is quite rare. Hence, if you want to gift mutual funds, you might want to reconsider as it is a hypothetical and not a practical approach.
So what should one do if they want units of a mutual fund scheme in their relative’s name? The only plausible way is if you first transfer the money in the relative’s account, and then they invest in mutual funds. The only scenario when mutual fund units can be transferred is if the unitholder dies. This case is usually in the favor of a legal nominee or a joint holder to whom the transmission takes place.
What are the legal documents required for the transmission of mutual funds?
According to the SEBI’s circular, to transmit mutual fund units, one would require a letter from a joint account holder or nominee (in cases where there is no joint account holder). They would also require the death certificate of the fundholder, and the KYC (know your customer) documents. Additionally, they would also require a bank account mandate to get the nominee’s account registered instead of the one belonging to the deceased fundholder. These legal documents could differ from an indemnity bond (in case the amount exceeds rupees one lac) to an affidavit by the legal heir.
As an individual, you can also invest for your children or start an SWP (systematic withdrawal plan) for your parents. Hence, instead of looking to transfer your mutual fund units, consider starting a SIP (systematic investment plan) or an SWP in different types of mutual funds for your children and parents respectively. This approach would be more effective in the long run. Happy investing!
