Birthdays, weddings, a new baby, a festival. In Indian families, these are moments for gifts, often cash or gold. Cash usually gets spent. Gold sits in a locker. But there's another option that more families are trying: gifting mutual funds. A gift that's invested can keep growing for years, and it often teaches the person receiving it something valuable about money. Here's how gifting mutual funds works in India, the main ways to do it, and what to keep in mind.
Why gift mutual funds?
Think long term. An invested gift has time on its side. For a child, money invested at birth has many years to grow before college or a first job. For a young adult, it can be the start of their own investing habit. And unlike cash, it's less likely to disappear into everyday spending.
Our page on compounding explains why time makes such a difference.
Option 1: invest in the person's own name
The simplest way to gift a mutual fund is to invest directly in the recipient's name. The money goes from your account to the fund house, and the units are held in their folio.
For an adult, they need their own completed KYC and bank account. For a child under 18, the investment is made in a minor's folio, with a parent or guardian managing it. Our page on mutual funds for minors explains how minor folios work.
Option 2: invest in your own name for them
Some people prefer to invest in their own name, in a separate folio clearly meant for the person, and add them as nominee. This keeps control with you, which can make sense if the recipient is young or if you want flexibility.
Our post on investing in a child's name or your own walks through the pros and cons.
Option 3: gift a SIP
Instead of a one-time amount, you can start a monthly SIP for the person, for example a grandparent running a small SIP for a grandchild until they turn 18. It's a gift that keeps arriving every month.
Our page on saving for grandchildren explains how grandparents can set this up.
Can you transfer units you already own?
Moving existing mutual fund units from your folio to someone else is restricted. In most cases, you would need to redeem and give the money, or the recipient would invest it themselves. Transmission after death is a separate process. Our page on transferring mutual funds to another person explains the rules.
Choosing a fund for a gift
Think about when the money might be used. For a newborn, a long-term diversified equity fund often makes sense. For a young adult who may need the money in a few years, a hybrid fund may suit better. Keep it simple: one sensible fund is a better gift than three complicated ones, and it is far easier for the recipient to understand and follow.
Our pages on equity mutual funds and hybrid versus equity funds explain the choices.
Paperwork you'll need
- The recipient's KYC, or a guardian's KYC for a minor.
- The recipient's bank account details, or the minor's account.
- Birth certificate or proof of age for a minor.
- A nominee, where applicable.
Our page on mutual fund KYC explains the basics.
Tax and gifts
Gifts to certain close relatives are treated differently from gifts to others under tax rules, and income from investments made in a minor's name may be added to a parent's income. The rules are detailed and can change. A tax adviser can explain what applies in your situation. I won't quote rules or limits here.
Make it meaningful
A mutual fund gift can feel abstract to the person receiving it. Add a note explaining what it is, why you chose it, and what you hope it might help with one day. For a child, you might share the statement once a year and explain how it has grown. It turns a gift into a lesson, and that lesson may be worth even more than the money itself over a lifetime.
Our post on teaching children about money has more ideas.
Gifting to a spouse
Some people invest in their spouse's name, especially when one partner doesn't earn. It can help build their independent savings. Tax rules on income from such gifts can be complex, so check with a tax adviser. Our post on why every woman should have her own investments explains why independent savings matter.
Gifts at weddings
Instead of cash in an envelope, some families now gift the couple a mutual fund investment or a SIP to start their life together. It's a thoughtful gift that grows with them. Our page on investing for newly married couples explains how couples can build on it.
A simple example
Suppose a grandmother wants to mark her grandson's first birthday with something meaningful. Instead of a gold chain that will sit in a locker, she starts a small monthly SIP in a diversified fund, in a minor's folio managed by his parents, and plans to continue it until he turns eighteen. Every birthday, the family shows him the statement. By the time he finishes school, he has a fund and a lesson in patience. This is an illustration, not a recommendation.
Gifts for young adults starting work
A first job is a great moment to gift a small lump sum into a fund in the young person's own name, along with help setting up their first SIP. It nudges them into a good habit early. Our post on how to invest your first salary is a nice companion to that gift.
Festival gifts
Diwali, Raksha Bandhan and other festivals are traditional gifting times. A small mutual fund investment can be a thoughtful alternative to sweets and clothes, especially for nieces, nephews and grandchildren. Over many festivals, those small gifts can add up to something meaningful.
What to avoid
- Choosing a risky, narrow fund just because it did well recently.
- Forgetting the recipient's KYC and bank details.
- Not adding a nominee.
- Gifting money you may need yourself soon.
Keep a record of gifts
If you give mutual fund gifts to several family members over the years, keep a simple record of who received what, in which fund and folio, and when. It helps you track them and avoids confusion later, especially for tax filing and if the recipients are children whose folios need converting at 18.
Gifts for children with special needs
For a child who may need long-term financial support, families often plan more carefully, sometimes with legal advice about guardianship and trusts. Investing for them is a long-term commitment, and getting professional legal guidance is worthwhile.
The bottom line
Gifting mutual funds is a simple way to give something that lasts. Invest in the recipient's name, or in your own for them, choose a sensible fund for the time frame, and add a note explaining why. Years later, it may be the gift they remember most.
If you'd like help setting up a mutual fund gift for someone in your family, I'm happy to help with the paperwork. Myfolios is an AMFI-registered mutual fund distributor (ARN-145870) working from Indore since 2014. Get in touch.
