Last Updated:January 10, 2026, 17:43 IST

Parents can now easily gift mutual fund units to children online via Demat or RTA platforms, with no gift tax under Section 56 (2).

Gift Mutual Fund Units to Children Without Capital Gains Tax: Here’s How

Parents can gift their children units held in their mutual funds without any restriction. The entire process is online and allows them to conveniently transfer the units to their children’s demat or folio.

Earlier, the process was typical with several checks and balances; however, in a series of reforms, Sebi has made the process smooth and easy.

According to Sebi guidelines, one can transfer units “off-market” without selling them. This helps avoid immediate capital gains tax.

Option A: For Units held in Demat Form

If your mutual funds are in a Demat account (like with Zerodha, Groww, or ICICI Direct):

Obtain a DIS: Get a Delivery Instruction Slip from your broker.

Fill Details: Enter your child’s Demat account details (DP ID and Client ID).

Submit Slip: Provide the slip to your broker. A nominal “off-market” transfer fee (usually around ₹25 or 0.03%) plus stamp duty will apply.

Acceptance: Your child may need to “accept” the transfer in their own demat portal.

Option B: For Units held in Physical/Statement of Account (SoA) Form

Previously, this required converting to Demat first, but new rules allow direct transfers through RTAs (like CAMS or KFintech):

Login to RTA/MF Central: Use platforms like MF Central, CAMS, or KFintech.

Select ‘Gift/Transfer’: Use the new online transfer module. You will need your child’s PAN and their existing folio number (or they must create one).

OTP Verification: Both you and your child will receive OTPs to authorize the transfer.

Stamp Duty: You will need to pay a small stamp duty (typically 0.015%) online to complete the process.

What Are Tax Implications?

The good news is that there’s no tax for gifting units of mutual funds to your children. Under Section 56 (2) of the Income Tax Act, gifting to “relatives” is exempt from gift tax.

But what you need to know is clubbing provision. If you gift to a minor, any income or capital gains generated from those units will be “clubbed” with your income and taxed at your slab rate.

For children over 18, the clubbing rule does not apply. Any future gains will be taxed in their hands.

When the child eventually sells the units, their “cost of acquisition” is considered to be the original price you paid, and the holding period starts from the date you first bought the units.

Disclaimer: The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Users are advised to check with certified experts before taking any investment decisions.

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