Gift for Lifetime

With the festive season just around the corner we all wonder what gift we should buy for our loved ones. A gift is an item given to someone without the expectation of payment or return.

Generally, Gifts could be physical items or money. While money could be used or saved for future use, physical items almost always depreciate in their value. This holds good for sweets and chocolates, gift vouchers and several other items given as gifts. As on other hand even the value of money depreciates due to inflation.

The best gift will be the one whose value multi-folds over time and secures the receivers financial needs, such gifts are considered as gifts for lifetime. Giving financial instrument gift to children may not be valued at a very young age but he/she will realize its worth as they grow up.

Not all financial instruments make for great gift. The investment should create value for the recipient; the gift loses its worth if its value is reduced by inflation and taxes. Gold, cash, fixed deposit, PPF account or property have various short comings in terms of liquidity, returns, and tax efficiency. It is known that equity is the only asset that can beat inflation in long term.

This gifting strategy is more common amongst the grandparents gifting their grandchildren but the trend is rising and more and more people have started opting this option.

How to gift Equity Stocks

Since transfer of gift is with no consideration the transfer of equity can be carried out as an “off-market transfer”. Delivery Instruction Slip (DIS) is to be filled by the donor and submitted to a Depository Participant(DP). This acts as an instruction to the DP of when and to whom these equity stock has to be delivered. The recipient of the gift, the done, has to fill and submit receipt instruction slip to the DP. Once the DP receives the receipt instruction slip it will match the details with the DIS and if no discrepancies are found transfer of stocks take place on execution date as mentioned in DIS. The gift of shares is not taxable if the done is a relative or the value of shares is below Rs. 50,000/-. As the shares are movable property, it is not compulsory to make a “gift-deed”.

How to gift Mutual Funds

Gifting mutual funds is not as easy as gifting stocks. This is because mutual funds cannot be transferred nor will it accept cheques from third party. Only in case of minor, third party payments are accepted by only parents, grandparents and other immediate family. But this can only be done by submitting a declaration, with details about the bank account that will be used to make payments and relationship of minor and donor, which will have to be signed by the guardian.

The mutual fund account will be operated by the parents or by legal guardian till the child is a minor. After he turns 18, all SIPs will be suspended and the child will become operator of the folio.

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