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How to Gift Stocks or SIPs on Birthdays Instead of Cash
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During birthdays, the question always seems to arise: cash or a gift? Cash seems to be the go-to option, but it can be spent in a matter of seconds. Clothes and gadgets get old and lose their value, and many other gifts get forgotten. That is why, in recent years, a smarter, more meaningful gift option has been to buy stocks or SIPs.
With the introduction of demat accounts and mutual fund folios, gifting investments is no longer complicated in India. Now, instead of just gifting money, you can gift wealth. In this guide, we will provide answers to your questions on how to gift stocks, how to gift SIPs, gift mutual funds, and online shares.
What Cash Gifts Lose, Stocks/SIPs Gifts Win
Cash gifts are storyless, money spent on shopping and fleeting things. Stock/SIPs gifts starta new story. Investments teach valuable skills like patience, learning, and compounding, especially SIPs and stocks, which continue to grow over time. For instance, a 5,000 SIP invested on a child’s birthday can grow into several lakhs over a time period of 15 to 20 years. This emotional and financial worth far outweighs any cash gift.
Investments being gifted for birthdays, anniversaries, and even Diwali are becoming popular for this reason.
Understanding The Basics Before Gifting Investments
As you learn to gift stocks or SIPs, you should know one fundamental rule for India: investments are tied to ownership. This means that shares or units of a mutual fund have to be in someone’s name.
Investments can’t simply be handed over to someone. For this, stocks must be transferred using either a demat account or mutual fund folios. The good thing is that this can be done easily online.
Gifting Stocks in India
The first question to look into is how to gift stocks. In India, stocks can only be transferred using demat-to-demattransfer, which means that the shares need to be transferred from your demat account to the demat account of the recipient.
How to Gift Stocks Step by Step
- Before gifting stocks, make sure that the stock recipient has a demat account. Without a demat account, the stock recipient cannot receive the shares. If they do not have a demat account, you may assist them in opening one, and it can be done in a couple of minutes.
- After both of you have completed the demat account opening, you need to select off-market transfer. This method of transfer is the same as a gift transfer.
- Choose the stock that you want to donate, input the target demat account info, and select the ‘transfer stock as a gift’ option. Then the shares will be electronically transferred.
- You can utilise your broker's platform or the guidelines provided by your depository to complete the transfer.
Points to Keep in Mind
Gifting stocks holds no value of the stock in each account, and no share transaction can be conducted. Since no share transaction has been made, no STT (securities transaction tax) will be applied. If the recipient sells the stock, in that situation a capital gains tax will be applied, and it depends on the initial value of the stock when it is purchased, and the duration it has been held.
Also, gifting stocks to a close relative is tax-free under the Indian tax system. With a non-relative, the share value can be taxed if it is more than the set value.
How to Gift SIPs on Birthdays
Let us talk about SIPs as birthday gifts. This is especially common for children and young adults. A SIP is a Systematic Investment Plan. It is a type of mutual fund investment where you invest a set amount each month. Gifting a SIP is like gifting a habit of disciplined investing.
How SIP Gifting Works in India
In India, you cannot simply "transfer" an existing SIP to someone else. You will have to create a new SIP in the person's name.
If your recipient is an adult, the SIP is created in their mutual fund account. If the recipient is a minor, the SIP is created under a minor folio with either a parent or guardian as the controlling owner.
You may buy SIPs as a gift. However, the investment will be under the receiver's name.
One-Time Gift or Ongoing SIP?
When gifting SIPs, you can either give a one-time investment into a mutual fund or a monthly SIP for a specified period. This could be for a year, 3 years, 10 years, etc.
Every year, some parents and family members opt for birthday SIPs, which increase the SIP amount every birthday. This builds a very strong wealth accumulation strategy that is very stress-free.
How to Gift Mutual Funds as a One-Time Investment
Now, besides SIPs, you can also gift mutual funds as a one-time investment. Similar to SIP gifting, you would do a one-time investment in a mutual fund in the name of the recipient, and mark the source as “Gift”.
If you are gifting mutual funds, equity mutual funds are good for long-term goals (most popular), and for conservative gifting, you can stick to debt or hybrid funds. One of the best parts about gifting mutual funds is diversification. Even without selecting individual stocks, a beginner can benefit a lot.
How to Gift Shares Without Trouble
- Gifting shares online is simple these days. Investment platforms and brokers offer a lot of options to make gifting shares easy.
- There’s no need to print out forms and visit the branch. Everything can be done online, from ID verification to demat transfer.
- Some platforms let you add a nice message to the shares you are gifting to make it more personal. This way, the investment gift is not just a technical thing.
Taxes and Gifting Stocks or SIPs
- Taxes are important when it comes to gifting investments.
- Donating shares or mutual funds to close family members generally involves no tax for the giftee.
- However, if the giftee sells the investments later, the capital gains tax will still apply, based on the original purchase date and price.
- If shares or mutual funds are given to a friend or a family member, and the value exceeds the limit of exemption, it will be treated as the receiver's taxable income.
- Always mention “gift” as the reason for the transaction, for record keeping and to avoid confusion later.
Who is the Best Person to Gift Stocks or SIPs?
The best recipient for investments is the one who will appreciate the thought.
For children, it is best to have SIPs in equity mutual funds, as when stock markets are volatile, they will still have a positive return due to the equity in the funds. For teenage and adult children, gifting individual stocks will stimulate interest in financially responsible behaviour. For a spouse or parent, having a stock and mutual fund combo is best, because it will provide a good mix of growth and stability.
Occasionally, for a friend, having a worthwhile equity stock like a blue-chip or an index fund is a good alternative gift, especially on a birthday; they could be an equity capitalist.
What Stocks or SIPs Are Best to Gift
The focus should be on long-term worth, not on gifting for stock price speculation.
When gifting stock, be careful to only choose companies with solid fundamentals and stable business models. Avoid gifting stock in companies with excessive volatility or high speculation.
When gifting SIPs or mutual funds, choose diversified equity/index funds. They are easy to understand and possess the transparency and ability to create wealth over the long-term.
Simplifying investments creates the best gifting experience for the receiver.
Emotional Value of Gifting Investments
Apart from the monetary value, gifting Stock SIPs calls for an appreciation of the receiver. It shows genuine interest in the long-term future and goes beyond the immediate celebration.
Every time the recipient looks at their portfolio and sees increasing value, they think of the person. This emotional connection creates true value beyond physical cash gifts.
Wrapping It Up
Giving investments is the best option if you genuinely want to contribute something big, memorable, and meaningful. You may make every birthday a milestone in your wealth-building journey now that you understand how to gift stocks and the entire process of doing so in India. Give something that grows every year rather than things that waste away. That is the true power of clever gift-giving.
DISCLAIMER: This blog is NOT any buy or sell recommendation. No investment or trading advice is given. The content is purely for educational and information purposes only. Always consult your eligible financial advisor for investment-related decisions.
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Frequently Asked Questions
Yes, you can gift stocks in India through an off-market demat-to-demat transfer. Both the giver and receiver must have active demat accounts, and the shares are transferred electronically as a gift.
Yes, SIPs and mutual funds can be gifted in India, but existing SIPs cannot be transferred. A new SIP or lump-sum mutual fund investment must be created in the recipient’s name and marked as a gift.
Gifting stocks or mutual funds to close relatives is tax-free for the recipient. However, when the recipient sells the investment later, capital gains tax will apply based on the original purchase price and holding period.
Yes, stocks and SIPs can be gifted to a minor. In such cases, the investment is held in a minor demat account or minor mutual fund folio, managed by a parent or legal guardian until the child turns 18.
SIPs are better for long-term, disciplined wealth creation, especially for children and beginners. Stocks are suitable for adults who understand market risks and can actively track investments. The best option depends on the recipient’s age and financial awareness.
