Transfer of mutual fund units from one holder to another

H (D) (50 Points)

02 January 2021

I intend to transfer my mutual fund units (held as sole holder) to my mother, again to be held by her as sole holder. While exploring the possibility of doing so, I have gone through a large number of websites, forums etc ( including AMC offices), all of which state that transfer of mutual fund units from one holder to another is NOT permitted, except in the case of death of holder when units are allowed to be transferred/ transmitted to the nominee. Howver, Association of Mutual funds of India i.e. AMFI has clearly stated under Investor Services FAQ on its website as follows:

QUOTE

The person desirous of gifting the units may either bequeath the units to the person whom she/he wishes to gift through a Will or transfer the units through De-mat mode via an off-market transaction in the transferee’s De-mat account. For the latter mode, the units must be held in Dmat mode only. If the units are held in physical mode, then the same will first need to be dematerialized and then transferred through off-market mode as stated above.

UNQUOTE

In view of above, it seems obvious that just like shares & stocks can be transferred/ gifted by one holder to oyher through offmarket transaction, similarly mutual fund units can also be transferred if held in demat mode.

I request clarity on feasibility on doing so as except AMFI, no other source suggests so.

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CAN I ADD AN ADDITIONAL NAME AS JOINT HOLDER IN AN EXISTING FOLIO?

‘Units’ of mutual funds are ‘securities’ within the meaning of securities as defined under Securities Contract Regulation Act.

As per law, addition of a 2nd name / 3rd name in an existing mutual fund folio / account constitutes a ‘transfer’ of assets, requiring payment of stamp duty etc.

To overcome the above legal hassle and to enable clients to transfer the units freely, as mandated by SEBI , all mutual funds have provided a facility to the clients to hold units in demat mode. Each mutual fund scheme has a separate / distinct ISIN, as mandated by SEBI, so as to facilitate dematerialization of units easily.

In other words, units held in demat mode are freely transferable via Stock exchanges in case of listed schemes / ETFs and via off-market transaction, in case of unlisted schemes. This facility is not available in respect of units held under physical statements. In other words, an investor who wishes to add a name/ joint holder in an existing mutual fund folio / account may do so by transferring the units held in demat mode, from the demat account of the sole holder to the desired demat account held in multiple names through an off-market transaction.

Unquote

Though in above case, the units are not being transferred from the original holder to another, however inclusion of joint holder has been achieved in same manner as advised for transfer.