Smart Ways to Invest in Mutual Funds for Your Child's Future...Give Up Your House and Land: The Ultimate Gift for Loved Ones!


Invest in Mutual Funds for Your Child


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Instead of giving gifts to minor children on their birthdays and other important occasions, you can invest in mutual fund schemes in their names!

 

It has been a tradition for a long time to gift our loved ones with properties like houses, land, and gifts. Among such gifts, many of us may have a question as to whether and how to gift mutual fund investments to our loved ones. We cannot easily gift mutual fund investments like houses, land, jewelry, or money. We must strictly follow the rules and regulations set by regulatory bodies like Income Tax Department and SEBI.

A demat account is not necessary to invest in mutual funds. To gift mutual fund units or transfer them to someone, both parties need a demat account. Therefore, if you have been investing in mutual fund schemes without a demat account, you should first open a demat account and transfer the units in paper form to a demat account. Only then can you transfer the units to the demat account of your loved ones.

Our mutual fund units can be converted offline and online through stock brokerage firms. First, let's see the methods of converting offline by contacting the Depository Participants (DP) companies directly.

* The Conversion Request Form (CRF) for converting units to a demat account must first be submitted to the DP company. These DP companies serve as a bridge between investors and the depository companies NSDL and CDSL, which maintain demat accounts, and provide services to investors.

* In this form, details about the investor and the schemes in which they have invested should be given.

* The DP companies will verify this information and transfer the mutual fund units to the demat account.


Online method...

To transfer units online, you can follow the following steps.


* First, you need to log in to your demat account by providing your account details.

* Go to the Mutual Fund section and select the mutual fund scheme and unit details to be transferred.

* You need to provide the details of the demat account to be transferred.

* You need to check all the information you have provided once and then finally submit it.


This request will be verified and your units will be transferred to the new demat account by the DP companies.

A fee of 0.03% of the total unit value or Rs. 25, whichever is higher, will be charged for such transfer. 18% GST will be charged on the additional fee. A stamp duty of 0.015% will be charged.

Minor children who have not completed 18 years of age can invest in mutual fund schemes in their own name instead of giving them cash or goods on their birthdays and other important occasions. The person who gives the money as a gift can be the guardian of the scheme. After the age of 18, this investment money becomes the money of the children.


Income tax calculation.


Gift tax rules apply to units given as gifts. When units are transferred to the demat account of blood related persons like children, siblings, parents, spouse, no matter how much the units are worth, the recipients do not have to pay any tax.

 

However, if they are not blood related, there is no tax up to a maximum of Rs. 50,000. If the amount transferred exceeds that, the entire amount transferred will be considered as the income of the recipient and tax will be levied as per the basic tax limit.


gift tax in india

People who receive units as gifts will have to pay income tax on the profit they make when they sell them and convert them into cash, depending on the fund category (debt fund, equity fund) and capital gains (short-term capital gains, long-term capital gains). The person who bought the units can also include the period during which they were held as an investment period.

In the case of stock market-based mutual fund schemes, if the units are purchased and held for more than one year, it is considered long-term capital gains. There is no tax up to a maximum of Rs. 1.25 lakh in a financial year. Income above that will have to pay 12.5% tax. If equity fund units are sold within a year, short-term capital gains will have to pay 20% tax. In the case of debt funds, tax will have to be paid according to the investor's tax limit, regardless of the investment period.

We have looked at the process of transferring mutual fund units to another person's demat account in detail. If such procedures are not desired, one can sell the units in the account and convert them into cash and ask the person to whom the gift is to be given to buy new units. When doing so, the gift will be invested in the recipient's account within a maximum of three days.

It is beneficial to choose a gift that will be useful to him/her throughout his/her life. Giving mutual fund units is one such good gift. It will provide the recipient with a large sum of money in the long run. Let's congratulate and enjoy giving the best gift to our loved ones..!

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