How Can Mutual Funds Be Transferred?

Transferring mutual funds might seem complex, but with the right information, the process is quite simple and efficient. Whether you are transferring mutual funds between accounts, changing ownership, or even consolidating investments, understanding the transfer process is essential for seamless management of your portfolio. Let’s explore the various scenarios under which mutual funds can be transferred and how each of these transfers can be executed.

1. Transfer of Mutual Funds Between Demat Accounts

If you hold your mutual funds in dematerialized (demat) form, you can transfer them from one demat account to another. This type of transfer may occur if you are shifting to a new broker, or even if you want to consolidate your mutual fund holdings in a single account.

Steps to Transfer Mutual Funds Between Demat Accounts:

Initiate Transfer: Contact the broker or depository participant (DP) where the mutual funds are held. You’ll need to fill out a Delivery Instruction Slip (DIS) form, mentioning the units you wish to transfer, the destination demat account, and other details.
Verification Process: The DP will verify the details, ensuring all information provided is accurate.
Transfer Execution: Once verified, the mutual fund units will be transferred to the new demat account. This usually takes a few days.

Key Points to Remember:

The transfer should be to an account held by the same individual, joint account holders, or family members. Transfer to unrelated third parties is generally restricted.
Depending on the brokerage or DP, there may be nominal transfer fees involved.

2. Transfer of Mutual Funds on Account of Death of the Investor

If the original investor passes away, the mutual fund units can be transferred to the nominee or the legal heir. This process can be more time-consuming as it involves the submission of various documents to the Asset Management Company (AMC) or mutual fund registrar.

Documents Required:

Death Certificate: An attested copy of the death certificate of the original holder.
KYC of the Nominee/Legal Heir: The nominee or legal heir must complete Know Your Customer (KYC) formalities if they haven’t done so already.
Claim Form: A mutual fund transmission form needs to be submitted by the claimant.
Indemnity Bond/Legal Heir Certificate: In cases where there is no nomination, legal heirs may be required to submit additional documents like indemnity bonds or a legal heir certificate.

Once all the necessary documents are submitted and verified, the mutual fund units will be transferred to the nominee or legal heir.

3. Transfer of Mutual Funds from a Joint Holding

For joint account holders, mutual funds can be transferred between the joint holders in specific scenarios, such as the demise of one holder or the decision to change the ownership structure of the investment.

If one joint holder passes away, the units are transferred to the surviving holder(s) automatically, upon submission of a death certificate.
If the joint holders mutually decide to transfer the units to a new holding pattern (e.g., changing the sequence of the holders or removing one holder), a mutual fund form requesting the change is required.

4. Transfer from Physical to Demat Mode

Mutual fund units can also be transferred from physical mode (where you hold a statement of account) to demat mode, which provides better flexibility and easier management of investments.

How to Transfer:

Dematerialization Request Form (DRF): The investor needs to fill out a DRF with their DP and attach their mutual fund account statement.
Submit to AMC/Registrar: The DP will process the form and submit the necessary information to the mutual fund AMC or the registrar (such as CAMS or KFintech).
Units Credited in Demat Form: Once the process is completed, the mutual fund units will reflect in the investor’s demat account.

5. Transfer of Mutual Funds Between Different Brokers or AMCs

Investors may want to transfer mutual funds between different brokers or from one AMC to another. Although mutual funds cannot be transferred directly from one AMC to another, units can be transferred between brokers if held in demat form.

If the mutual funds are held with an AMC directly and you wish to shift them to another AMC or broker, you can redeem the units from the first AMC and reinvest the redeemed amount into the mutual funds of the second AMC or through another broker. This, however, involves capital gains taxes and exit loads, which must be carefully considered.

6. Transfer of Mutual Funds in Case of Gift or Donation

In India, transferring mutual funds as a gift or donation is possible but with limitations. Generally, you can transfer mutual funds to family members like spouses or children, provided they are held in demat form.

Steps to Transfer as a Gift:

Fill the DIS Form: Specify the units to be transferred and the recipient’s demat account details.
Submit to DP: The DP will execute the transfer upon verification.

Please note that such a transfer may have tax implications depending on the nature of the relationship between the donor and the recipient.

7. Transfer in Case of a Will or Succession

When mutual funds are part of an estate being distributed through a will or succession, the process of transferring ownership to the rightful heirs can be complex. It involves probate proceedings or legal certifications like a succession certificate.

Required Documents:

A certified copy of the will or succession certificate.
A request form for transmission of mutual funds.
The claimant’s KYC and bank details.

The AMC will process the transfer once all documents are verified.

Tax Implications of Transferring Mutual Funds

It’s important to understand that transferring mutual funds could trigger tax liabilities in certain cases. Here are some scenarios:

Transfer due to inheritance or nominee claims: This is not considered a “sale” or “transfer” from a tax perspective, so no capital gains tax applies.
Transfer between demat accounts: If the ownership remains the same, no tax is applicable.
Redemption and reinvestment: If you redeem units before transferring, capital gains tax may apply based on the tenure of the investment (short-term or long-term gains).

Final Considerations Before Transfer

Before initiating any transfer, it’s important to keep the following in mind:

Ensure all KYC details are updated for the recipient.
Verify if the transfer will result in any exit loads or capital gains taxes.
Ensure the recipient’s demat or bank account is ready to accept the transferred units.

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