Gifting mutual funds? All you need to know about SEBI’s MF voucher proposal

The Securities and Exchange Board of India (SEBI) has released a consultation paper on the introduction of Gift Prepaid Payment Instruments (Gift PPIs). It has invited the public to submit their suggestions by April 14. Here are the details of the new proposal and its impact on mutual fund investments.

What is SEBI’s proposal?

SEBI proposes allowing people to gift investments through regulated prepaid vouchers, with strict limits and safeguards to prevent misuse and protect investors.

What is the objective?

• To promote financial inclusion
• To attract first-time/retail investors
• To make investing as simple as gifting money or vouchers

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How does the system work?

1. A person buys a Gift PPI (via bank transfer or UPI)
2. Gifts it to another person (family/friends/children)
3. The recipient claims ownership
4. Uses it to invest in mutual fund schemes via an Asset Management Company (AMC) platform

Mode and framework

This can be physical or digital It works within both SEBI (MF rules) and RBI (PPI rules) frameworks

Limits and conditions

Value limits

• Maximum per Gift PPI: Rs 10,000 (as per RBI rules)
• Total investment via PPI, wallet, and cash is capped at Rs 50,000 per investor per financial year (per MF/AMC)

Funding restrictions

• Only through:
• Bank transfer
• UPI
• No cash funding
• No credit-card-based promotional funding

Validity and refund

• Valid for 1 year
• If unused, the amount is refunded to the purchaser’s bank account

Usage rules

• Full amount must be invested (no partial use)
• Not permitted to:
• Withdraw cash
• Transfer funds elsewhere
• Reload the card

Compliance and safeguards

Ownership and KYC checks

• Recipient must claim legal ownership before investing
• Name must match mutual fund folio
• Else, the transaction is rejected and refunded

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No third-party payment rule

Maintains the existing MF rule that only the actual investor (owner) can invest

No incentives allowed

• No cashback, rewards or promotional benefits
• Ensures no mis-selling or forced investing

Investment flexibility

• Gift giver may suggest a scheme (not binding)
• Recipients can:
• Choose their own scheme
• Use a distributor (regular plan)
• Invest directly (direct plan)

Why is this initiative important?

It makes mutual fund investing more accessible and more gift-friendly (like vouchers)

It could help:

• Parents to start investing for their children
• Bring new investors into markets
• Promote financial literacy via gifting culture

Tax implications

For the giver

• Buying a Gift PPI is treated like gifting money
• No tax for the giver (gift itself is not taxable in India)
• No tax deduction benefit (unlike ELSS investments)

For the recipient

At the time of receiving

• Tax depends on the relationship:

• Tax-free if received from relatives, like parents, spouse, siblings, etc.
• Taxable if from non-relatives above Rs 50,000/year. It would be taxed as “Income from Other Sources”

At the time of redemption, that is, selling the MF Units

• Normal mutual fund taxation applies

Key takeaways

• SEBI wants to let people gift investments instead of cash, using regulated prepaid vouchers, while keeping strict limits and safeguards to prevent misuse
• When implemented, the instrument may be used like an Amazon voucher for wealth creation and can be gifted on occasions like birthdays, weddings, etc.
• It may bring first-time investors into mutual fund investment
• As the money goes to MF investment, misuse of gifted money is arrested
• The recipient can choose equity or debt or hybrid funds through a direct or regular plan.
• Rs 10,000 limit per voucher and Rs 50,000 annual limit may be limiting factors. But based on experience, these may be revised.

(The content above is for information only, and does not constitute investment advice.)