Until recently, mutual fund units could only be transferred between parties if held in dematerialized (demat) form. But with the latest changes, unitholders in non-demat form can carry out transfers directly via RTA websites like CAMS and KFintech.
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The changes are being rolled out in phases. In phase 1, which went live on 14 November 2024, three key features were enabled:
Surviving joint holders can now add new joint holders to a folio after the death of a co-holder.
Nominees can transfer units to legal heirs upon the demise of the unitholder.
When a minor turns 18, they can add parents, guardians, or siblings as joint holders to their account.
In phase 2, which began on 19 May 2025, the system allows full-fledged transfer of units to relatives and third parties, and enables adding or deleting joint holders — all through a few simple online steps.
“By allowing spouses to be added as joint holders, the transmission in the event of death becomes easier. A joint holder is essentially inheriting in its own right (as per Sebi circular) and not as a trustee of the eventual heir. In a way, a joint holder is a shared heir rather than a nominee, who is required to transfer the amount to the legal heir,” said Harsh Roongta, a registered investment advisor (RIA) and founder of Fee Only Investment Advisers. “Allowing such additions will reduce the burden during hard times.”
How does the online transfer work?
Investors must first visit the MF Central website and select the asset management company (AMC) whose units they wish to transfer. Once the AMC is chosen, MF Central automatically redirects the user to the respective registrar and transfer agent (RTA) platform — CAMS or KFintech — depending on which agency services that AMC. Alternatively, investors can log in directly via the relevant RTA website.
The transferor, who must be an individual (minors are excluded), needs to enter their PAN, folio number, email address, and mobile number, and specify whether the transfer is to a relative, a third party, or intended as a gift. This choice is critical, as it determines the subsequent tax treatment. (More on that shortly.)
Both the transferor and transferee must have ‘KYC validated’ status. Those who completed KYC using Aadhaar typically have validated status already.
Following OTP verification on both email and mobile for the transferor, they select the mutual fund units and quantity they wish to transfer. The RTA will automatically verify that the units are free of any lock-ins, freezes, or liens before proceeding. Next, the transferee’s details are entered, including their folio number.
“If the balance units in the transferor’s folio falls below specified threshold / minimum number of units as specified in the Scheme Information Document (SID) of the respective MF scheme, such residual units shall be compulsorily redeemed, and the redemption amount will be paid to the transferor,” stated Amfi (Association of Mutual Funds in India) on its website.
Importantly, the transferee must have an active folio with the same AMC.
For example, if Mr. A wants to transfer HDFC Mid Cap Opportunities to Mr. B, Mr. B must first open a folio with HDFC AMC. To facilitate this, Amfi instructed AMCs via a letter dated 14 August 2024, to enable zero-balance folios so recipients without existing folios can still receive transferred units.
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Once both parties complete OTP verification, the transfer request is initiated. According to Amfi, the transaction should be reflected within two working days. To safeguard against fraud, the transferred units are locked from redemption for 10 days. Units are transferred on a first-in, first-out (FIFO) basis, meaning the oldest units are transferred first.
Tax implications: Transfer vs gift
Crucially, unitholders must carefully select whether they classify the transaction as a transfer or a gift, as tax treatment differs significantly.
“While transferor can choose any of the option while transferring units, considering the tax implications that vary with each scenario viz., gifting of units/transfer to third parties/transfer to legal heir etc, transferor/transferee is advised to consult with their tax consultant before initiating the transfer,” said ES Varadarajan, Chief Risk & Process Officer, CAMS.
According to Prakash Hegde, a Bangalore-based chartered accountant, when a transaction is classified as a transfer, tax authorities treat it as being done for consideration, triggering capital gains tax for the transferor. “The sale consideration minus cost of acquisition is considered as capital gains. The transferor needs to pay applicable tax on the gains,” he explained.
The latest available NAV is used for calculating stamp duty.
For instance, if Mr. A initiates a transfer at 4 pm on Wednesday, Tuesday’s closing NAV will be used to compute the consideration value and the applicable stamp duty (@0.015%) payable by the transferor, since Wednesday’s NAV will only be published late at night (typically around 11 pm).
However, for capital gains purposes, the applicable NAV will be based on the actual settlement date of the transfer, treated as a redemption for the transferor and a purchase for the transferee.
In contrast, if the transaction is classified as a gift, the transferor is exempt from capital gains tax since no consideration is received. However, if the recipient is a non-relative and the value exceeds ₹50,000, the recipient must pay tax on the entire gift amount, as income from other sources, at their applicable slab rate.
“For instance, if the gift is worth ₹75,000, tax will apply to the entire amount based on the recipient’s slab rate,” Hegde noted. The NAV at the time of transfer is used to calculate the value of the gift.
Separately, a stamp duty of 0.005% applies to all transfers (whether to relatives or others), but gifts are exempt from stamp duty, Varadarajan of CAMS clarified.
What should investors keep in mind?
Abhishek Kumar, RIA and founder of Sahaj Money, advised investors to factor in the mandatory 10-day lock-in following a transfer before units can be redeemed.
“They should plan liquidity needs accordingly so they are not caught off guard,” Kumar said.
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He also cautioned that the eventual cost of acquisition for the recipient depends on whether the transaction was treated as a transfer or gift — a key factor that will affect future capital gains tax when the units are eventually sold. Moreover, only units free of lien, lock-in, or freeze are eligible for transfer, Kumar emphasized.
