During the festivities in India, the concept of gifting is deeply rooted in tradition and plays a significant role in strengthening relationships and celebrating special occasions. Now that Diwali is at the door, you might be considering purchasing a gift that would bring smiles to the faces of your loved ones. However, why not gift something that is long-lasting and will help to make their future financially strong?
Gifting a mutual fund is something that will make your loved one cherish it over a long period of time. It is likely to be a life-changing experience for the recipients and can help them fulfil their financial goals in the future. Now, let us delve into some steps that you can follow to gift mutual funds to your loved ones.
Investment gifts through mutual funds
This Diwali, instead of giving cash to your near and dear ones, you can invest the money in their name in mutual funds. There are two ways you can initiate the process: either through a lump-sum systematic transfer plan (STP) or through a systematic investment plan (SIP). Today, there are several attractive equity mutual funds that could deliver lucrative returns in the future, making them a gift that will grow with time. One must always stay in touch with their broker to get financial advice on these types of investments.
A recent circular issued by the Securities Exchange Board of India (SEBI) stated that investments can now be made from the minor’s joint account with a parent or legal guardian, as well as from the minor’s bank account. This makes it possible to gift mutual funds to your children as well as your grandchildren. However, one must also understand that the investments in the minor’s name will not have any joint owners, and as soon as the person turns 18, they will be the sole owners of the mutual funds.
Also Read: Golden Opportunities This Diwali: From gold ETF to SGB, diversified ways to invest in gold
Investing in mutual fund schemes with a monthly interest payment facility is one way to give your parents a gift of mutual funds this festive season. As the primary investor, you can also benefit from tax benefits through the SWP (systematic withdrawal plan) schemes in addition to rupee cost averaging. Additionally, it will provide your parents with a set amount to support them with their future needs.
Now, there are some prerequisites and documentation requirements for this process, which are listed below.
Prerequisites, documents, and processes
If you have already been investing in mutual funds, you can transfer them from one account to another. According to the National Securities Depository Limited (NSDL), a demat account holder can transfer mutual funds units from one account to another, except for the MFs that are under a lock-in period. Therefore, the primary requirement for transferring a mutual fund to another person is that both the participants, i.e., the gift donor and the recipient, must have a demat account.
Now, for the documents, one must have a gift deed, which is between the gift donor and the recipient. It must contain the details of MFs, quantity, details of the participants, signature, and date of execution. The deed must further be executed on a stamp paper, which must be signed by the donor, attested by at least two witnesses, and registered. Apart from this procedure, some depository participants (DP) allow online gifting options for gifting MFs through the trading portal. It is a more convenient process as it eliminates all the paperwork and hassle. Moreover, the status of the transfer can also be tracked through the portal.
You can log into your DP account and add the beneficiary owner (BO) ID of the recipient in order to transfer mutual fund units inside the same DP. One can begin transferring mutual fund units once the recipient has received approval from the DP. Even inter-depository transfers are permitted as of December 2022. Thus, a CDSL beneficiary owner ID can now be transferred to an NSDL account holder, and vice versa.
Sovereign gold bond: another gifting option to consider
Issued by the government of India, you can also give the gift of a sovereign gold bond (SGB) to your close friends, family, or relatives. Given the infatuation Indian investors have with gold, many parents would rather give their kids sovereign gold bonds than actual gold, which is more difficult to handle. Without having to deal with the inconveniences of holding and storing actual gold, it provides the advantages of gold investment without the headaches of insurance, storage, or safety. An additional benefit for investors is the 2.5% interest that is payable every six months. Therefore, SGB options are giving investors a lot more value over the holiday season, when Indians typically spend a lot of money on physical gold.
Also Read: Is it wise to buy Sovereign Gold Bonds from secondary market? Critical points explained
A bright financial future
While expensive gifts can be alluring to your loved ones, securing their financial future is the best way to show your care, goodwill, and gratitude. Mutual funds in this regard can be a viable gifting option. Today, one can transfer mutual fund units to another person when both of them have demat accounts with a broker. Moreover, with changes to SEBI regulations, parents can now invest in mutual funds in the name of their children. In addition, you can also start a SWP for your parents to provide them with financial security. As you exchange the glow of Diwali, consider gifting the endurance of financial investments such as mutual funds, sovereign gold bonds and more that will not only illuminate the festival but also pave the way for a bright financial future of your loved ones.
This article has been written by Nitin Shahi, Executive Director of Findoc. Views expressed are personal.