Recently, Association of Mutual Funds in India (‘AMFI’) vide their Best Practices Guidelines (BPG) Circular No.116 /2024-25 dated August 14th, 2024 & BPG Circular No. 119/2025-26 dated May 08th, 2025 has made certain regulatory changes that now make it easier for investors to transfer their mutual fund units. Earlier, investors could transfer only “demat-held” mutual fund units.
Units held in the “statement of account (SOA) form” could be transferred only after dematerialisation of units. Alternatively, in order to transfer such mutual fund units, investors had to:
Sell their units and
Repurchase them in the recipient’s name
In case of sale and again re-purchase, it triggered capital gains tax, even when the investor wanted to transfer their units to their ‘relatives’ as defined in Income-tax Act, 1961.
AMFI’s new framework will help investors in transferring their units held in SOA mode.
After the latest changes, investors can now transfer demat and SOA units without dematerialising SOA units. This makes it easier to transfer mutual fund units to family members or while planning inheritance.
Want to understand the latest changes in detail? Read this article to learn how mutual fund transfer works.
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What the old rules looked like?
Before the changes, transfer was allowed only for “demat-held units”. This excluded a large number of investors, as several mutual fund units in India are held in SOA form. If a person wanted to transfer SOA-based units, they had to either dematerialise their units or
First, redeem the units
Pay capital gains tax on the profit
Repurchase the same units in the recipient’s name
The same process even applied to succession planning or the addition of a joint holder. This led to major issues in three distinct areas:
1. Problems in Inheritance and Succession
Under the earlier rules, SOA mutual fund units had to be dematerialised or redeemed at the time of inheritance. Investors could not transfer units directly to beneficiaries.
The result? In case of sale and again re-purchase, Investors paid capital gains tax on sale even though they intended to transfer their units to their ‘relatives’ as defined in Income-tax Act, 1961. It made inheritance complex and created unnecessary tax outflow.
2. Transferring During Family Events Became Costly
Many Investors sold their mutual fund units during weddings or festivals like Raksha Bandhan just to give money to relatives. They could not transfer the units to themselves, so they used redemption as one of the option. As a result, they paid tax and sometimes exit load charges.
3. Joint Holder Changes Forced Unnecessary Redemption
Under the old rules, adding a parent, spouse, or child as a joint holder required the mutual fund units to be dematerialised or redeemed first. Investors could not simply update the holding pattern. The second option again led to:
Selling existing investments
Triggering capital gains tax
Paying exit loads, if any
What has changed now?
The new rules released by AMFI and noted by SEBI vide email dated August 13, 2024 now allow transfer of both:
Demat units and
SOA units (without dematerialising)
Now, SOA mutual fund units can be transferred without converting them into demat mode. This eliminates the option to “redeem” and “repurchase”. Also, this helps in capital gains tax planning when transferring to ‘relatives’ as defined in Income-tax Act, 1961.
For what purposes is the transfer allowed?
The new framework supports transfers by all the investors under Resident/non-resident Individual category.
Some major advantages of this reform
Besides helping in capital gains tax planning while transferring to ‘relatives’ as defined in Income-tax Act, 1961, one of the major benefits of this reform is “convenience”. Investors can now make changes to their mutual fund holdings without selling their investments. They can:
Transfer units
Add or remove holders
Transfer units to family members
Avoid paperwork related to redemption and repurchase
Additionally, this change may help in capital gains tax planning. Let’s understand in detail:
A person in a higher tax bracket can transfer mutual fund units to their ‘relatives’ as defined in Income-tax Act, 1961 with low or no income.
Since the units are transferred to their ‘relatives’ under a gift or will or an irrevocable trust, no capital gains tax applies at the time of transfer in accordance with the provisions of Income-tax Act, 1961*.
Later, if the recipient sells the units, any gain realised will be taxed as an income in his/ her hands as per the applicable provisions of the Income-tax Act, 1961.
Now, if they are eligible for the rebate limit under Section 87A of the Income-tax Act, 1961, the tax on those gains may be zero.
*Subject to conditions under section 47(iii) of the Income-tax Act, 1961, transfer of units to ‘relatives’ under a gift or will or an irrevocable trust should not be regarded as a transfer for the purpose of computing capital gain tax under section 45 of the Income-tax Act, 1961. Investors should seek tax advice with respect to specific amount of tax and other implications arising of his/ her participation in a mutual fund scheme.
Conclusion
So, the latest changes by AMFI now allows both SOA and demat units to be transferred without dematerialisation of SOA units. Transferring to relatives is not treated as a “taxable event” subject to conditions specified in Income-tax Act, 1961.
The new framework provides an alternative to selling and repurchasing units, which earlier used to trigger unnecessary capital gains tax. Now, the capital gains tax liability arises only when the recipient redeems the units.
Disclaimer
The views mentioned above are for information & educational purposes only and do not construe to be any investment, legal, or taxation advice. Investors must do their own research before investing. The views expressed in this article are personal in nature and is in no way trying to predict the markets or to time them. Any action taken by you on the basis of the information contained herein is your responsibility alone, and Tata Asset Management Pvt. Ltd. will not be liable in any manner for the consequences of such action taken by you. Please consult your Mutual Fund Distributor before investing. The views expressed in this article may not reflect in the scheme portfolios of Tata Mutual Fund. There are no guaranteed or assured returns under any of the schemes of Tata Mutual Fund.
Disclaimer
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