SEBI Eases Mutual Fund Unit Transfers, Unlocks Tax-Saving Opportunities

The Securities and Exchange Board of India (SEBI) has introduced a regulatory change that simplifies the transfer of mutual fund units, creating significant tax-saving opportunities for investors. Until now, gifting or transferring mutual fund units was practically limited to demat-held units, forcing investors to redeem and repurchase SOA-based units, which triggered capital gains tax.

With the new framework, investors can now transfer units directly without liquidation, whether under a Will, inheritance, or joint holding adjustments. This reform is expected to benefit millions of mutual fund investors by reducing unnecessary tax outflows and making estate planning easier.

What Has Changed Under SEBI’s New Rules?

Previously, mutual fund units held in statement of account (SOA) form could not be gifted or transferred easily, creating a major hurdle for investors. The only way to execute a gift was to sell the units and repurchase them in the recipient’s name, which resulted in capital gains tax and additional transaction costs.

SEBI’s latest move removes this barrier by allowing SOA-based units to be transferred just like demat units, ensuring flexibility for investors. This change is particularly relevant for those planning inheritance or adding and removing joint holders without triggering tax liabilities.

Tax Benefits for Investors and Families

The ability to transfer mutual fund units without redemption opens the door to strategic tax planning within families. For example, an investor in a higher tax bracket can gift units to an adult family member with little or no taxable income.

Under Section 87A of the Income Tax Act, individuals with income up to ₹12 lakh under the new regime can enjoy a full tax rebate, making gains on gifted units effectively tax-free. This provision means that debt fund gains and other mutual fund returns can now be optimised for tax efficiency without complex restructuring.

Why This Reform Matters?

The decision has been in discussion since April and has already seen practical adoption, with several cases executed in recent weeks. Earlier, while gifting mutual funds was theoretically permissible under income-tax rules, operational challenges made it nearly impossible without incurring tax costs.

Investors had to redeem units, pay capital gains tax, and repurchase them in the recipient’s name, which was both cumbersome and expensive. SEBI’s move eliminates these inefficiencies, making gifting and inheritance of mutual funds a seamless process for all stakeholders.

Read More: SEBI Plans Easier Transfer of Old Physical Shares.

Conclusion

SEBI’s regulatory tweak marks a significant step toward investor-friendly reforms in the mutual fund industry. By enabling transfers of both demat and SOA-based units, the regulator has simplified estate planning and reduced tax burdens for millions of investors.

This change is expected to encourage more families to use mutual funds as a long-term wealth-building tool without worrying about unnecessary tax implications. As awareness grows, the new framework could reshape gifting and inheritance practices in India’s mutual fund market.

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