Now mutual fund units will be transferred without Demat account
Securities and Exchange Board of India (SEBI) has given a big relief to mutual fund investors. Under the new rules, now the requirement of demat account for transferring mutual fund units from one person to another has been removed. This step will bring great convenience to crores of investors who keep their holdings in ‘Statement of Account’ (SoA) i.e. non-demat mode. This decision will make it easier for investors to gift units to their family members, add the name of a loved one or settle legal succession issues.
Why was this change needed?
mutual fund Investing is not just about making money, it is also often a part of family financial planning. There are many occasions in life when investors need to hand over their units to someone else. Understanding these practical needs, SEBI has simplified the rules.
For example, sometimes investors want to gift their units to their children or spouse. Additionally, following the unfortunate demise of a unitholder, various complications arise. Suppose, there are two joint holders of a folio and one of them passes away, the surviving holder can now easily add another family member as the new joint holder.
Another big problem has been solved. Often, the nominee in the folio would get the units, but if the deceased had other legal heirs, it was difficult for the nominee to deliver the units to them. Under the new rule, once the units are transmitted in the name of the nominee, he can later transfer them to other entitled beneficiaries. Similarly, when a minor investor turns 18, his folio changes to ‘major’. Now he can add his parents or any sibling as a joint holder in his folio.
On which schemes will the rules apply?
This new circular of SEBI applies to almost all mutual fund schemes. Investors can transfer units of the scheme of any fund house under this facility. However, two main exceptions have been kept in this.
First, this facility will not apply to exchange-traded funds (ETFs), as their trading takes place through stock exchanges. Second, this rule will also not apply to solution-oriented schemes (like children’s funds or retirement funds). The main reason for this is that these schemes have age-based eligibility criteria and a fixed lock-in period, which hinders the transfer process.
Talking about eligibility, all resident and non-resident (NRI) Indian investors holding units in ‘Statement of Account’ (SoA) mode can avail this facility. But, there are some important restrictions in the rules. Transfer of units from or into the folio of any minor is not permitted. Additionally, transfer of units by a resident Indian to the account of a non-resident Indian (NRI) will also not be allowed.
Transfer process will be completed sitting at home
SEBI has made this entire process secure and completely digital. Investors do not need to go anywhere to transfer units, this can be done only through the websites of Registrars and Transfer Agents (RTAs) such as CAMS, KFintech, or MF Central.
The process is quite straightforward. First of all, the transferor of the units has to log in to the RTA portal using his PAN number. There they have to select the scheme from which they want to transfer the units and also fill the details of the person to whom the units are being given (Transferee).
To ensure security, consent of all unitholders of the folio is mandatory. This consent will be taken through a one-time password (OTP), which will be sent to the registered mobile number and email of all holders. This process will be completed on a first-in, first-out (FIFO) basis, just like redemption (selling units) or switch transactions in mutual funds.
Keep these important conditions in mind before transfer
To avail this facility, SEBI has also set some basic conditions, which are mandatory to be followed. The first and most important condition is that the units being transferred should not be under any kind of lien, freeze or lock-in. For example, if your units are in a tax-saving (ELSS) scheme and the lock-in period of 3 years has not been completed, you cannot transfer them.
The second condition is that both the transferor and the transferee must have a valid folio in the same mutual fund house. If the transferee does not already have a folio with that fund house, he will have to open a ‘zero balance folio’ before initiating the transfer process. Apart from this, it is mandatory for the KYC of both the parties to be completely valid and verified.
Most importantly, the units will not be sold immediately after transfer. These units will not be allowed to be redeemed for 10 days from the date of transfer. This is a kind of cooling-off period, which will help prevent any kind of haste or misuse.