Mutual Funds

Your Fund Portfolio

Parvatha Vardhini C | Updated on June 23, 2019 Published on June 23, 2019

I am an NRI. I made a nominal investment of ₹5,000 in SBI Magnum Taxgain Scheme 20-odd years ago. I get ₹10,000-15,000 as dividend each year. The current market value of the scheme is around ₹1.5 lakh. I would like to transfer the available balance in favour of my grandchildren. I was advised that the money has to be deposited in their respective accounts, and after which, they have to make an application to have the investment made in mutual funds. It looks like a long procedure, and I felt it would be easier to nominate the grandchildren (all Indian) so that, effectively, a transfer can take place. I am at a crossroads as to what procedure I should adopt. They are Radhika (13), Arjun (11) and Siddarth Ramdas (8); I wish to give each of them a one-third share.

AK Ramdas

You cannot make an investment in your name and transfer the mutual fund units to your grandchildren as such. The only situation in which the units can be transferred to another holder is upon demise. This is done by making the intended beneficiaries the nominees. If you opt for the nomination route, you can update the asset management company on the names of the minor nominees, the percentage allocation to each, and the name and address of the guardian. Usually, up to three persons can be nominated. In this case, switching to the growth option may help you build a bigger corpus if you are not particularly dependent on the dividend income. However, a switch may attract capital gains tax.

The other way is to redeem the units (capital gains tax could be applicable) and use the proceeds to invest in mutual funds in the name of your grandchildren. Most AMCs allow grandparents to be guardians for investments in the name of minor grandchildren. NRIs from some countries may not be able to invest across all AMCs. You can check with the individual AMC before you make investing. Even otherwise, you could instead give the sales proceeds to your son/daughter (assuming they are resident Indians), who could in turn invest that in the name of their children.

While this may seem a long procedure, choosing this path instead of the nomination route can help you go for new funds. SBI Magnum Taxgain’s performance hasn’t been great over both short and long time-frames. Many fund houses offer children’s funds which comes with a lock-in period of five years or until the child attains majority. While some of them are debt-oriented funds such as SBI Magnum Children’s Benefit, others such as HDFC Children’s Gift are equity-oriented funds. Both are good performers over the long term, and you can choose based on your risk appetite. You can also choose from diversified equity funds or aggressive hybrid funds, instead. However, since it will be a long term investment for the future of the children, it will be better to review the performance regularly and change to better performers, if necessary.

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Published on June 23, 2019

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