Mutual Fund Transfer-Gifting & Transferring of Mutual Funds (2024)

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Mutual funds have garnered significant popularity in the Indian markets over the years. Therefore, mutual fund transfer is one such concept that has become essential for investors seeking to optimize their portfolios, adapt to changing financial goals, or explore better-performing funds. Surprisingly, the popularity of mutual funds has gained momentum to such an extent that investors are thinking of gifting mutual fund units to their loved ones. Yes, that’s true. In the following discussion, we will delve into the viability and intricacies linked with gifting or transferring mutual funds to a different owner. But is it possible? Well, let’s find out.

What are the Benefits of Mutual Funds?

Opting for mutual funds can be a good investment for the average investor aspiring to secure future capital gains. Given their assured financial stability over a long-term horizon of 5-15 years, the transferability of mutual funds becomes an essential procedure.

What is a Transfer of Mutual Funds?

A mutual fund transfer refers to moving ownership or control of mutual fund units from one investor to another. This can be done only under one situation where the mutual funds are inherited by the nominee upon its death. The transfer of mutual funds is a gray area, according to the regulations of the Securities and Exchange Board of India (SEBI) in 1996. This can occur through various means, such as gifting, selling, or bequeathing mutual fund holdings. The transfer may involve a change in the registered holder of the mutual fund units and often requires specific documentation and adherence to regulatory procedures.

Understanding the Process of Transferring Mutual Funds

Unlike equity shares, where shareholders can transfer share certificates directly to another individual, mutual funds operate differently. However, it may not be feasible for some to gift mutual funds to someone else or transfer them directly to another unitholder without going through the open market. In the case of mutual funds, the only method for transferring units to another person, apart from inheritance, involves the seller selling the units on the open market, and the prospective buyer acquiring them at the prevailing market price.

Steps Involved in Transferring Mutual Funds

The transfer of mutual funds involves the following steps:

• Access your mutual fund account and choose the option for fund transfer.
• Provide details for both the source and destination mutual fund schemes.
• Specify the quantity of units you intend to transfer.
• Verify any applicable exit load and other charges.
• Submit the transfer request.
• Please note that the transfer process typically takes a few days to be finalized.

Can We Transfer Mutual Funds to Another Person?

The transfer of mutual fund units between different holders is an infrequent occurrence, making the notion of gifting mutual fund units a speculative idea that can be difficult to execute. In truth, mutual funds may not accept ‘third party’ units as such. Investing in mutual funds using one’s own name for funds belonging to a spouse, or vice versa, is not permitted for now.

However, mutual fund transfer can only be done incase of unitholder’s death. Other than that, mutual fund transfer from one person to another can be done via the open market, i.e., the unitholder sells MF units, and the intended buyer purchases the same at the relevant market price.

How to Transfer Mutual Funds From One Broker to Another?

Transferring mutual funds from one broker to another can be an easy process! Choose the “in-kind” transfer option to avoid selling and repurchasing shares (tax implications!). Your new broker will provide a transfer form, which you’ll fill with details of your holdings and current broker info. Submit it, settle any dues, and voila! Your funds will land in your new account within a few days. Remember, check for exit load fees from your current broker and potential processing fees at the new one.

How to Transfer a Mutual Fund to a Demat Account?

There are two main ways to transfer mutual funds to a demat account: offline and online.

Offline Method

• Obtain a Conversion Request Form (CRF) from your Depository Participant (DP). This is usually a stockbroker or bank that holds your demat account. You can download the form from their website or request it in person.
• Mutual Fund Conversion Request Form
• Fill out and sign the CRF. Include all the required information, such as your demat account details, the mutual fund scheme name, and the number of units you want to transfer.
• Submit the CRF to your DP along with a statement of account from the mutual fund. The statement of account will show your current holdings in the scheme.
• Your DP will send the CRF and statement of account to the mutual fund’s registrar and transfer agent (RTA). The RTA will verify the information and credit the units to your demat account.
• The transfer process usually takes a few hours. Once it is complete, you will see the mutual fund units in your demat account statement.

Online Method

• Log in to your demat account online.
• Go to the “mutual funds” section and select the “transfer” option.
• Choose the mutual fund scheme you want to transfer and enter the number of units you want to move.
• Select your demat account as the destination.
• Review the transaction details and submit the request.
• The transfer process will usually be completed within a few hours. Once the transfer is complete, you will see the mutual fund units in your demat account statement.

How to Transfer SIP from One Broker to Another?

In practice, you cannot transfer SIP from one broker to another. However, there are two alternative approaches you can take to achieve a similar outcome:

1. Stop the Existing SIP and Start a New One:

• Cancel the SIP with your Current Broker: You can usually do this through their online portal or by contacting their customer service. Ensure you understand any exit charges or processing fees associated with stopping the SIP.
• Open a New SIP with your New Broker: Choose the desired mutual fund scheme and set up a new SIP with your preferred investment amount and frequency.

2. Use the ‘Inter-scheme Switch’ Option:

• This option allows you to switch units from one scheme to another within the same Asset Management Company (AMC).
• Check whether your existing AMC offers this facility and your target scheme is eligible.
• If applicable, initiate the inter-scheme switch through your current broker, specifying the target scheme and the amount you want to transfer.
• Once the switch is processed, you can set up a new SIP in the target scheme with your new broker.

Transfer of Mutual Funds In Case of Death

In the unfortunate event of an investor’s demise, the transfer of mutual funds follows a predefined process, often facilitated by the nomination system. When an individual invests in mutual funds, they have the option to nominate a beneficiary who will inherit the holdings in the event of the investor’s death. The nominee, specified by the investor, becomes the rightful recipient of the mutual fund units. As stated above, money fund transfer can only be done incase of death of the unitholder. This nomination process serves as a crucial mechanism to ensure a seamless transfer of assets and simplifies the legal procedures involved in the inheritance of mutual funds.

For staking a claim, here is a list of legal documents needed.

• Death certificate
• Letter from co-holder
• KYC of the nominee
• Mandate to register the nominee’s bank account
• Proof of the beneficiary’s identity
• Indemnity bond if the amount exceeds Rs 1 Lakh

In the Case of a Single Unit Holder

It is easier to assert ownership and transfer units to a nominee when the investor holds single ownership, whether or not a nominee is designated, compared to situations where investors have not nominated anyone in their mutual fund investments. Hence, it is crucial to nominate and review nominations periodically.

In the Case of More Than One Unit Holder

The remaining unit holder (if joint) is required to complete a transmission request form (T2) along with the necessary documents if the deceased individual was the primary holder. In the eventuality of the second or third unit holder passing away, the surviving unit holder(s) must complete form T1 and formally request the removal of the deceased second and/or third holder’s name.

When Should You Consider Mutual Fund Transfer?

Deciding when to consider a mutual fund switch involves careful evaluation of your investment objectives, market conditions, and the performance of your current holdings. However, the transfer of mutual funds can happen for various reasons, including a shift in investor objectives, poor performance of the present fund scheme, or a desire to manage mutual funds on their own. Now let’s also have a look at the potential scenarios as well.

Potential scenarios for mutual fund switches include:

• Transitioning from equity to debt funds or vice versa.
• Shifting from regular to direct funds.
• Opting for a fund with higher potential returns.
• Making a switch from growth-oriented funds to those focused on dividends.

Mutual Fund Transfer Agents

Every shareholder has the right to receive precise information regarding their investments. While certain corporations opt to manage their own transfer processes, others prefer the engagement of third-parties such as a mutual fund transfer agency, trust company, bank, or similar financial institution. These entities charge fees for their services.

Companies often hire specialized third-party firms to manage transfer agent services, and many find it worthwhile despite the associated costs. Transfer agents play a crucial role, particularly for large corporations with numerous shareholders. For instance, publicly traded companies may issue millions of shares of stock, now someone has to keep a tab of all the information relevant to those companies. This is where transfer agents come in.

What are the Benefits of Transferring Mutual Funds?

Some of the benefits of mutual fund transfer are:

• Mutual fund Transfer to a Better Scheme: If an existing mutual fund underperforms consistently compared to its benchmark or similar funds, transferring to a better-performing fund can potentially boost investment returns.

• Optimize Asset Allocation: As your investment goals and risk tolerance evolve, your ideal asset allocation may change. Transferring funds can help you rebalance your portfolio to align with your updated financial objectives.

• Consolidate Holdings: Managing multiple mutual funds can take time and effort. Transferring them to a single scheme simplifies your portfolio and makes it easier to track your investments.

• Reduce Costs: Some fund houses offer free or discounted switching options their investors. This can help you save on transaction fees for buying and selling funds.

• Tax Benefits: In some cases, transferring funds within the same category (e.g., equity to equity) can offer tax advantages compared to selling and repurchasing funds. However, consult a financial advisor for specific tax implications.

Considerations Before Transferring Mutual Funds

If a unitholder has not submitted nominee details and hasn’t provided nominee details in their application, their immediate next of kin must provide specific documents, like the unit holder’s death certificate, the claimant’s personal KYC, and any required fees following the AMC guidelines.

The regulations levied by SEBI states that mutual fund houses can’t accept contributions from third parties. This means that the contributions of the mutual fund units should be from the unitholder’s account only. Therefore, if someone wants to invest in mutual fund units for their spouse or children, they need to transfer funds to their own account first and then make the payment for the units from that account.

On the other hand, it is common practice to transfer mutual funds from one broker to another under the same investor’s name. This can be easily done by filling out the necessary forms with both brokers – closing the account with the previous broker and opening a new one with the new broker. The investor must clear any outstanding dues with the previous broker to complete the transfer.

Transfer Fees and Taxes

When you transfer mutual funds around, you might have to pay transfer fees and taxes. The transfer fees come from the mutual fund company and are usually a percentage of your transfer amount. The taxes you might have to pay depend on the kind of mutual fund and your tax situation.

To Wrap It Up…

The transfer of mutual fund units via a gift deed is not a viable option. To facilitate a seamless transfer of holdings to their intended nominee or legal heir, unitholders must accurately complete the nomination process. Transfer agents, responsible for tracking stock and bond ownership, are often sourced from third-party entities like trust companies, banks, or similar financial institutions. The regulations enforced by SEBI and AMFI are designed to safeguard investor interests, preventing insider trading and unwarranted securities transfers that could disrupt the market system.

As always, investors must do their own research and/or consult their financial advisor before investing.

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