How to Transfer Mutual Funds: Demat & Folio-Based Methods

What Are Mutual Funds?

Mutual funds are an investment option wherein the money collected from various investors is invested in the form of shares, debentures, gold, or money market instruments. The investment in the scheme is done by the professionals known as fund managers according to the scheme's objectives. The investors get units in the mutual fund scheme.

Can Mutual Funds Be Transferred?

Yes, mutual funds can be transferred, but the process depends on the way the units are held.

• Demat Mode: Mutual fund units held in a Demat account can be transferred from one Demat account to another through the Depository Participant.
• Folio (Statement of Account) Mode: Units held directly with an AMC or through an RTA follow a separate transfer or transmission process without using a Demat account.

Before starting the process, investors should first confirm whether their mutual fund units are held in Demat or folio mode.

How to Transfer Mutual Funds?

The process of transferring mutual funds varies depending on the holding format. In Demat mode, units are transferred through the depository system. In folio mode, requests are submitted directly to the AMC or RTA. Understanding the holding mode helps investors follow the correct procedure and avoid delays.

Transfer Mutual Funds Held in Demat Mode (Broker to Broker)

Investors who hold mutual fund units in a Demat account can transfer them from one broker to another by following these steps:

• Open a new Demat account with the broker where you want to move your mutual fund units.
• Obtain the Client Master List (CML) or Demat account details of the new account.
• Request a Delivery Instruction Slip (DIS) from your existing Depository Participant.
• Fill in the required details, including the ISIN of the mutual fund units, quantity, and destination Demat account details.
• Submit the completed DIS to your existing DP for processing.
• Once verified, the mutual fund units are transferred to the new Demat account.

Transferring Demat-Held Mutual Fund Units (DIS Process)

When mutual fund units are held in Demat mode, the Delivery Instruction Slip (DIS) is the primary document used for transferring them.

• The transfer process generally involves:
• Verify the ISIN of each mutual fund scheme that you want to transfer.
• Enter the ISIN, quantity of units, and recipient Demat account details in the DIS.
• Review all details carefully before submission to avoid processing errors.
• Submit the DIS to your DP or use the online transfer facility, if available through the depository.
• After successful verification, the units are credited to the destination Demat account.

Some depositories also provide online transfer facilities for eligible Demat account holders, subject to their applicable procedures.

Transferring Mutual Funds Held in Folio (Non-Demat) Mode

The units of mutual funds which are invested in folio (Statement of Account) system have a separate procedure compared to that of Demat system. The investor does not have to fill out any form called Delivery Instruction Slip (DIS); he has to make the appropriate request to the AMC or RTA like CAMS or KFin Technologies.

The process generally involves the following steps:

• Confirm that the mutual fund units are held in folio mode.
• Obtain the required transfer or transmission form from the AMC or RTA.
• Complete the form with the folio number, scheme details, and the required information.
• Submit the necessary KYC documents and supporting proofs, if applicable.
• The AMC or RTA verifies the request and updates the records after successful verification.

As per the applicable SEBI and AMFI framework, the transfer of mutual fund units held in SoA (non-Demat) mode may be permitted in several eligible situations, subject to the prescribed conditions and documentation. These include:

• Gifting of mutual fund units
• Transfers to eligible family members
• Transfers between siblings
• Transfers to third parties
• Addition or removal of joint holders
• Transfers from a nominee to the legal heir
• Transmission following the death of a unit holder
• Other eligible cases permitted under the applicable SEBI regulations and mutual fund guidelines

The AMC or RTA will process the request after verifying the documents and ensuring that it meets the applicable regulatory requirements.

Steps for Transfer of Mutual Funds in Case of Death (Transmission)

If a mutual fund holder passes away, the units are not transferred through a regular transfer process. Instead, they are transmitted to the eligible claimant after the required documents are verified.

The process generally involves:

• The nominee can submit a transmission request if a nomination has been registered.
• For jointly held investments, the surviving holder can request transmission of the units.
• If no nominee exists, the legal heir or claimant must submit the prescribed documents.
• Additional documents may be required depending on the value of the investment and the applicable regulations.
• After verification, the AMC or RTA updates the ownership details and completes the transmission process.

How to Redeem Mutual Funds to Your Bank Account

Redeeming mutual funds and transferring mutual funds are different processes. Redemption means selling the units and receiving the proceeds in your registered bank account, while transfer means moving the ownership of the units without redeeming them.

To redeem mutual fund units:

• Log in to your mutual fund investment platform, AMC website, or broker account.
• Select the mutual fund scheme that you want to redeem.
• Enter the number of units or the amount you want to redeem.
• Review the redemption request and confirm the transaction.
• After processing, the redemption amount is credited to your registered bank account as per the applicable settlement timelines.

Benefits of Transferring Mutual Funds

Transferring mutual funds can make investment management more convenient in certain situations.

• It helps consolidate investments into a single Demat account or folio.
• Investors can continue holding their investments without redeeming the units.
• It may avoid capital gains tax that could arise from redeeming and reinvesting the units.
• Managing portfolios becomes simpler when investments are maintained in one place.
• It supports smoother record keeping and portfolio tracking.

Mutual Fund Transfer Fees and Taxes

Before transferring mutual funds, investors should understand the applicable charges and tax implications.

• Transferring mutual fund units generally does not result in capital gains tax if there is no redemption.
• Taxes may apply if units are redeemed instead of transferred.
• The applicable capital gains tax depends on the mutual fund category and holding period.
• Under the current tax provisions, eligible equity mutual funds may qualify for the applicable LTCG exemption of up to ₹1.25 lakh in a financial year.
• Depository Participants or intermediaries may charge applicable service fees for Demat transfers, where relevant.

Documents Required for Mutual Fund Transfer

The documents required depend on whether the mutual fund units are held in Demat mode or folio mode.

For Demat-Held Mutual Funds

• Completed Delivery Instruction Slip (DIS)
• Client Master List (CML) of the destination Demat account
• PAN card
• Identity proof, if required
• Any additional documents requested by the Depository Participant

For Folio-Held Mutual Funds

• Mutual fund transfer or transmission request form
• PAN card
• KYC acknowledgement, where applicable
• Identity and address proof
• Supporting documents, if required for specific cases such as transmission

Conclusion

The method of transferring mutual funds is determined by the form of holding that the units are held in – whether it is Demat or folio mode. Units held in Demat mode are transferred via a Depository Participant, while units held in folio mode are transferred via the AMC/Registrar and Transfer Agents of the AMC.