Understanding Can Mutual Funds Be Transferred: People tend to choose things specific to the receiver when it comes to gifting. Now if you want to gift something that only rises in value over time, the task gets trickier.
The obvious ideas that come to mind are gold, silver, or other expensive jewellery. But what about financial assets such as stocks and mutual funds?
Can they be gifted? Or can your mutual fund holdings be transferred even if you’re not gifting? In this blog, we’re going to talk about a much-debated topic of asset transfer, specifically regarding mutual funds.
Perks Of Mutual Fund Investing
Mutual funds are appealing to all sorts of investors, passive or active. They are preferred by investors who have long-term goals.
Given the time horizon of mutual funds, investors would find transferability as a necessary part of mutual fund investing.
Mutual Funds – Transferred Or Transmitted?
Regarding mutual funds, their ownership can be changed in two ways – Transfer and Transmission. While the two terms sound similar, they have slightly different processes.
When mutual funds are transferred to the nominee or a surviving member of the family, it is known as “transmission”. Here, the change in ownership is due to the death of the unit holder.
A transfer is when the unit holder is alive and is changing ownership of the mutual fund.
Can Mutual Funds Be Transferred?
Yes, mutual funds can be transferred. But the process is not black and white.
- The transferability of mutual funds is simple on paper. In fact, SEBI allows the transfer of mutual funds. But the law is only as good as the ones that follow it. Even though SEBI has allowed for the transfer of mutual funds, AMCs and fund houses don’t share the same enthusiasm. Fund houses think that given the fact that mutual funds are easily liquidated and sold, the transfer of ownership becomes unnecessary.
- Cases, where mutual funds are transferred, are quite rare. This makes the idea of gifting such funds hypothetical. Mutual funds do not allow investors to buy units on behalf of their spouse/family members. This comes under what is known as a third-party payment, and it is not accepted by mutual funds.
- Since gifting and transfer are ruled out, the only other way to gift mutual funds is by transferring the cash amount to the relative/family member’s bank account. They will then be able to use that money to invest and receive the mutual fund units in their name. As you cannot invest on their behalf, this is the best option.
Mutual Fund Transfer Due To Demise
In the section above, we talked about the gifting and transfer of mutual funds. While mutual fund transfer is allowed by SEBI, it is not practiced by the fund houses themselves.
The one scenario where fund houses have no choice but to transfer ownership is the demise of the unit holder. The nominee needs the below documents to claim the investment –
- Death Certificate of the deceased
- Letter from the nominee
- KYC of the nominee
- Registration of nominee’s bank account
- Indemnity Bond if investment amount exceeds >₹1 lakh
According to SEBI and The Association of Mutual Funds Of India, these are the required documents for mutual fund transmission due to the death of the unitholder.
The fund house requires a letter from the joint holder or nominee, along with the death certificate of the unitholder. Besides this, they also need the KYC documents such as the AADHAR and PAN card of the nominee.
Since the original unitholder is deceased, the bank account has to be changed as well. This is why they require the bank account mandate of the nominee.
Now if you were under the assumption that you can buy mutual funds for someone as a gift, you would be wrong.
The mutual funds would be yours alone and the only way the receiver could own them is if you sent them the money and they bought the mutual funds through their own account.
What If The Unitholder Doesn’t Have A Nominee?
There are cases where a clear will is not drafted due to the untimely passing of a person. This can cause issues due to which legal claims arise. In case the unitholder doesn’t name a nominee, here are some of the documents required –
- A relevant document(s) that provide evidence of the relationship between the deceased unitholder and the claimant(s)
- No Objection Certificate (NOC) from the other legal heirs for transmission up to ₹2 lakh rupees
- A bond of indemnity furnished by the legal heirs for transmission with legal representation.
- Individual affidavits were given by each legal heir and
- Letter Of Administration or court judgment, in case of interstate succession (If Transfer amount > ₹2 lakh rupees) OR
- A notarized copy of a probated will
Mutual Fund Awareness About Transferability
Through this blog, I hope you have understood the complex nature of mutual fund transfers. Even though mutual fund transmission is possible, it is a lengthy process and not as simple as it seems.
The documentation has to be clear and the former unitholder needs to have a clear line of transfer in case of death. Investors of these funds need to maintain a clear line of transmission in case of such situations.
Even small details such as matching the name of the nominee to their PAN card are important. We hope this answered your question – Can mutual funds be transferred? Happy Investing!
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