New SEBI Provision on Transfer of Mutual Fund Units — A Game Changer for Investors

Mutual funds have long been among the most popular investment avenues for retail and institutional investors alike. However, one area that has historically been cumbersome is the transfer of mutual fund units especially when they are held in the traditional Statement of Account (SoA) mode. Until recently, transferring or gifting mutual fund units often meant selling them, paying capital gains tax, and then reinvesting, a process that was clunky, costly, and tax-inefficient.

That has changed! and in a big way.

What’s the New Provision?

In 2025, the Securities and Exchange Board of India (SEBI), supported by the Association of Mutual Funds in India (AMFI), introduced a regulatory framework that allows investors to directly transfer mutual fund units(including those held in SoA (non-demat) mode) to another person without the need to redeem them.

Before this change, such transfers were typically limited to units held in demat form. SoA-mode units ­which constitute the majority of mutual fund holdings among Indian retail investors had to be redeemed and repurchased in the recipient’s name if investors wanted to gift or transfer them. This triggered unnecessary capital gains tax, exit loads, and extra paperwork.

Who Can Transfer Units Now?

Under the updated framework:

• Any resident or non-resident individual investor holding mutual fund units in SoA mode can transfer units through online platforms like CAMS, KFintech, or MF Central.

• The facility covers almost all mutual fund schemes except Exchange Traded Funds (ETFs) and some solution-oriented schemes with special eligibility criteria.

• The transfer can be partial (not necessarily the entire holding).

  
  

In Which Situations Can You Transfer?

The new provision enables unit transfers in several scenarios:

• Gifting units to a family member or any other person

• Transferring to heirs or beneficiaries under a Will or after the death of the unitholder

•  Adding or removing joint holders from a folio

•  Transferring to third parties, including siblings.

Importantly, the transfer process is now fully digital. Investors can complete it online without physical forms, courier documents, or visiting an AMC office.

How the Tax Treatment Works

The transfer provision alone doesn’t automatically change the taxation of the units:

✔ If units are gifted to a close relative (as defined under the Income Tax Act), the act of gifting does not trigger capital gains tax for the giver.

✔ The recipient inherits the original acquisition date and cost(important for calculating capital gains when they eventually sell).

✔ If you transfer units to someone other than a relative, tax implications may apply for the recipient under gift taxation rules.

For example, an investor in a higher tax bracket can gift mutual fund units to a low-income family member, potentially reducing the overall tax burden on future gains because long-term capital gains could be sheltered within rebate limits (like Section 87A).

Why This Matters

This new provision is a huge win for investors because it:

1. Removes the need to redeem units just to transfer them.

2. Saves tax and transaction costs.

3. Simplifies estate planning and wealth transfer.

4.  Brings parity between demat and SoA mutual fund holdings.

5. Digitizes a previously offline, paper-heavy process.

   
   

Conclusion

Thanks to SEBI’s new mutual fund transfer provision, investors now enjoy greater flexibility and control over how they manage their investments bypassing unnecessary taxes or administrative hurdles. Whether you’re planning to gift units, restructure family portfolios, or simplify legacy transfers, this change makes mutual funds more tax-efficient and investor-friendly than ever before.