Transfer of mutual fund units from one holder to another

Others 971 views 5 replies

H

50 Points Joined December 2020

I intend to transfer my mutual fund units (held as sole holder) to my mother, again to be held by her as sole holder. While exploring the possibility of doing so, I have gone through a large number of websites, forums etc ( including AMC offices), all of which state that transfer of mutual fund units from one holder to another is NOT permitted, except in the case of death of holder when units are allowed to be transferred/ transmitted to the nominee. Howver, Association of Mutual funds of India i.e. AMFI has clearly stated under Investor Services FAQ on its website as follows:

QUOTE

The person desirous of gifting the units may either bequeath the units to the person whom she/he wishes to gift through a Will or transfer the units through De-mat mode via an off-market transaction in the transferee’s De-mat account. For the latter mode, the units must be held in Dmat mode only. If the units are held in physical mode, then the same will first need to be dematerialized and then transferred through off-market mode as stated above.

UNQUOTE

In view of above, it seems obvious that just like shares & stocks can be transferred/ gifted by one holder to oyher through offmarket transaction, similarly mutual fund units can also be transferred if held in demat mode.

I request clarity on feasibility on doing so as except AMFI, no other source suggests so.

Replies (5)

ayusmita

Tax consultant

5890 Points Joined September 2020

Mutual fund units cannot be transferred from one person to person or neither they are gifted as per the sebi regulations
and AMFI also states the same things
mutual fund units are transferred only in case of death to legal hire or the 2nd person of joint holder or the nominee
if one wants to transfer then that person have to transfer cash in his or her Account and then invest in it
and regarding offmode transfer of mutual fund is at the time of changing one broker to another broker through demat account of same Holder

H

50 Points Joined December 2020

As I have already mentioned in quotes above, AMFI does say that transfer for the purpose of gifting is indeed possible through offmarket transaction of mutual fund units in demat mode. Please see the attched snapshot from AMFI India website. (https://www.amfiindia.com/investor-corner/investor-center/investor-faq.H T M L#accordion23). Hence, the request for clarity.

ayusmita

Tax consultant

5890 Points Joined September 2020

Sir can you just check the date of this article

H

50 Points Joined December 2020

There is no date as such as it is not a separate article but an answer to FAQs under section Investor Service FAQ. In fact, there are two such answers which indicate the possibility of transfer by dematerilising the mutual fund units. Other one is for adding a joint holder wherein AMFI has suggested the same route. Reproducing the same beliw for easy reference:

Quote

CAN I ADD AN ADDITIONAL NAME AS JOINT HOLDER IN AN EXISTING FOLIO?

‘Units’ of mutual funds are ‘securities’ within the meaning of securities as defined under Securities Contract Regulation Act.

As per law, addition of a 2nd name / 3rd name in an existing mutual fund folio / account constitutes a ‘transfer’ of assets, requiring payment of stamp duty etc.

To overcome the above legal hassle and to enable clients to transfer the units freely, as mandated by SEBI , all mutual funds have provided a facility to the clients to hold units in demat mode. Each mutual fund scheme has a separate / distinct ISIN, as mandated by SEBI, so as to facilitate dematerialization of units easily.

In other words, units held in demat mode are freely transferable via Stock exchanges in case of listed schemes / ETFs and via off-market transaction, in case of unlisted schemes. This facility is not available in respect of units held under physical statements. In other words, an investor who wishes to add a name/ joint holder in an existing mutual fund folio / account may do so by transferring the units held in demat mode, from the demat account of the sole holder to the desired demat account held in multiple names through an off-market transaction.

Unquote

Though in above case, the units are not being transferred from the original holder to another, however inclusion of joint holder has been achieved in same manner as advised for transfer.

Digi@54321

64 Points Joined February 2022

According to the regulation laid down by the Securities and Exchange Board of India (SEBI) in 1996, transfer of mutual funds from one holder to another is allowed. Most mutual fund houses or asset management companies do not provide the facility for investors to transfer their mutual fund holdings to another holder. The reason being a mutual fund can be easily liquidated, that is, converted into cash. A transmission of the fund can happen in the event of an untimely demise of the primary holder of the fund. In this case, the fund will be transferred to a listed nominee.

For more information visit : Axis Mutual Funds