How you can gift stocks, mutual funds this festive season

Summary

Gifting financial assets such as stocks and mutual funds during the festival season provides long-term value, with distinct transfer steps and tax implications depending on demat status and recipient relationships. 

With the festive season upon us around the corner, many people are looking for meaningful gifts for family and friends. One option is to gift financial assets such as shares, exchange-traded funds (ETFs), or mutual fund units, which can continue to grow long after the festivities are over.

Gifting these investments is now simpler than before. How you do it depends on the mode in which your investments are held, and the tax treatment depends on who receives the gift. Here is how you can do it.

Demat-held securities

If your shares, ETFs or mutual fund units are in a demat account, you can gift them by transferring them directly to the recipient's demat account without selling them. This is called an off-market transfer. This is a direct move between two demat accounts that does not go through the stock exchange.

Gifting securities is essentially an off-market transfer in which investments are moved from one demat account to another without being sold on the exchange. “Investors can gift shares, ETFs, mutual funds held in demat form and other eligible securities, provided the holdings are free from pledges, lock-ins or other transfer restrictions,” said Yashas Khoday, co-founder and chief product officer, FYERS, a discount broker.

Some brokers let you gift directly from your holdings, provided the recipient has an account with the same broker. The process typically starts with selecting the holdings and quantity, followed by entering the recipient’s details. For any such transfer, the recipient must first be added as a beneficiary in the sender’s account, using their Permanent Account Number (PAN) or 16-digit demat account number.

You can also do this directly by registering for CDSL Easiest or NSDL Speed-e. If you are doing it directly, the recipient's account need not be with the same broker.

“If the recipient holds a demat account with another broker, the sender can use CDSL Easiest to initiate an off-market transfer. This involves registering for the facility, linking the recipient's demat account, selecting the securities and quantities, specifying gifting as the reason for transfer and completing the required authentication. Transfers to NSDL accounts can also be initiated through the inter-depository transfer mechanism,” Khoday added.