The Securities and Exchange Board of India (SEBI) has introduced a significant relaxation for mutual fund investors by simplifying the transfer of fund units. The key takeaway is the allowance of unit transfers in the non-demat (Statement of Account – SoA) mode, thereby removing the compulsory requirement to open a demat account for specific types of transfers.
This facility is a major convenience for investors looking to manage their non-commercial transactions without the hassle of full dematerialization:
Schemes That Qualify
The transfer facility is broadly applicable but has specific exclusions:
- Qualifying Schemes: The facility is available across all mutual fund schemes offered by all fund houses.
- Non-Qualifying Schemes: The relaxation does not apply to: Exchange-Traded Funds (ETFs). Solution-oriented schemes (e.g., Children’s Funds and Retirement Funds) that have age-based eligibility criteria or restrictive lock-ins.
Reasons for Transfer
This rule-change makes several necessary life-cycle events in mutual funding much easier:
- Gifting: Transferring units as a gift to family members (e.g., spouse, children).
- Minor to Major: Adding a joint holder (such as a parent or sibling) once a child turns 18 and the folio status changes from minor to major.
- Succession/Inheritance: The surviving joint holder can add a new joint holder after the demise of an existing one. Similarly, a nominee of a deceased unitholder can now transfer the units to other legal heirs.
How to Process the Transfer
The entire transfer process is designed to be digital and verified:
- Platform: Transfers must be initiated only through the official websites of Registrars and Transfer Agents (RTAs), such as CAMS, KFintech, or MF Central.
- Consent & Verification: The consent of all existing unitholders is mandatory and secured via a One-Time Password (OTP) sent to their registered mobile and email.
- Prerequisites: The units must not be under lien, freeze, or lock-in period. Both the transferor and the transferee must have a valid folio within the same mutual fund house. If the transferee does not have one, they must open a ‘zero balance folio’ first. Both parties must maintain a valid KYC status.
- Processing Basis: The transfer is processed on a First-In, First-Out (FIFO) basis.
- Redemption Restriction: To prevent misuse, the redemption of the transferred units is restricted by a 10-day lock-in period from the date of the transfer.
SEBI’s decision to allow the transfer of mutual fund units in the non-demat (Statement of Account – SoA) mode represents a significant step towards enhancing investor convenience and simplifying essential life-cycle transactions.
The central benefit of this rule change is the removal of the compulsory requirement to open a demat account for specific non-commercial transfers, making the process more accessible and less cumbersome.
The facility is specifically designed to facilitate important events such as gifting units to family members , adding joint holders when a minor attains majority , and various scenarios related to succession and inheritance after the demise of a unitholder.
While the facility is available to all resident and non-resident individual unitholders in SoA mode , it carries sensible exclusions, notably Exchange-Traded Funds (ETFs) and solution-oriented schemes with age-based eligibility or restrictive lock-ins (like Children’s or Retirement Fun3ds).
To ensure regulatory integrity, the process remains robust, requiring online initiation via RTAs (CAMS/KFintech/MF Central) , mandatory OTP consent from all parties , and adherence to prerequisites like valid KYC status and the absence of any lien or lock-in on the units. Finally, a 10-day restriction on redemption is imposed on the transferred units to safeguard against potential misuse.
In essence, SEBI has made the mutual fund ecosystem more fluid and investor-friendly for administrative purposes while maintaining necessary checks and balances.