How Parents Can Gift Mutual Funds In 2026 Without Tax Surprises

Parents often gift mutual funds to children to build long-term wealth. Recent regulatory changes have streamlined the process but added compliance requirements. Understanding demat rules, costs, and tax implications ensures smooth transfers without unexpected liabilities.  

New Demat Rules  

Mutual fund units can now only be gifted in demat form. Parents must convert holdings from statement-of-account mode before initiating transfers. The process is treated as an off-market transaction, ensuring transparency and legal recognition.  

Costs And Compliance  

Gifting involves a nominal processing fee of Rs. 25 or 0.03% of the transfer value, whichever is higher, plus GST and stamp duty. Though minimal, these charges are mandatory for valid transfers.  

Tax Implications  

Parents face no immediate capital gains tax when gifting to children, as transfers between specified relatives are exempt. However, the child inherits the parent’s purchase cost and holding period. When redeemed, capital gains tax applies based on these original details.  

Clubbing Rules  

For minor children, income from gifted mutual funds is added to the parent’s taxable income, except for Rs. 1,500 per child annually. This rule applies until the child turns 18, making tax planning essential.  

Key Highlights  

• Mutual fund gifting now requires demat mode  
• Transfers treated as off-market transactions  
• Nominal costs include Rs. 25 fee, GST, and stamp duty  
• No immediate tax for parents; deferred liability for child  
• Clubbing rules apply for minor children’s income  

Sources: ET Now, The Economic Times, Mint