Gifting a systematic investment plan for Raksha Bandhan involves navigating complex rules around third-party funding, KYC requirements, and tax implications, making the act more intricate than simply transferring money.
Gifting a systematic investment plan, or SIP, can be a thoughtful Raksha Bandhan gesture, but it is not as simple as sending money straight into a sibling’s mutual fund account. NDTV Profit explains that mutual fund payment rules generally bar third-party funding, which means the investment must be made from the first-named investor’s own bank account. If a joint account is used, the first holder on the mutual fund folio must also be one of the joint account holders. A practical workaround, the report says, is to gift cash first and let the recipient set up the SIP from their own account.
That structure also matters for tax. According to NDTV Profit and LiveMint, money received from a brother or sister is usually exempt from income tax, regardless of the amount, because siblings are treated as specified relatives under Indian tax law. The tax treatment does not change simply because the gift is later invested in a mutual fund. In other words, the act of gifting may be tax-free, but the investment itself still follows the usual rules once it is in the recipient’s hands.
The SIP would need to sit entirely in the sibling’s name, with their own know-your-customer, or KYC, paperwork completed before investing. NDTV Profit says the mutual fund units then belong to the recipient, not the person who sent the money. LiveMint adds that gifting mutual fund units directly is a separate process from gifting cash and depends on how the units are held, particularly whether they are in demat form.
There is also a later tax point to keep in mind. Once the gifted money has been invested and the units are redeemed, any capital gains would generally be taxed in the hands of the sibling who owns the investment. The money may enter the account as a gift, but the return on that money is treated as the recipient’s income from investment. NDTV Profit also notes a limited exception for minors: parents or legal guardians can operate the account, and AMFI rules allow certain third-party payments for SIP instalments of up to Rs 50,000, subject to KYC and declaration requirements.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
