We all love our families and friends and are always keen on fulfilling their interests. Our families are our support and hence, more often than not, we buy presents for them as surprises, whether it is the occasion of a birthday, festival, a specific function, or even just to express appreciation.
But why not gift something more valuable than tangible objects which often are a depreciating asset? Why not gift them something that potentially grows over time? And if you would love to do that, you can certainly go with equity shares or stocks, health insurance, life insurance, or mutual funds. This way your near and dear ones would be able to avail long-term benefits. So, let’s understand what financial gifts you can give to your family and friends without having much struggle.
Stocks
Gifting stocks to your loved ones can have several benefits, both financial and emotional. Stocks have the potential to grow over time and offer dividend income. Another reason for gifting stocks is that it can be a practical way to educate your loved ones about investing and financial markets. Also, these stocks can contribute to a diversified investment portfolio for your loved ones. Isn’t that great?
Gifting stocks to your loved ones is quite a straightforward process through the stock market. First of all, make sure the recipient has a Demat account as it is necessary for holding and trading stocks. Now you can gift stocks by initiating an off-market transfer. But how it is done? Well, it involves completing a Delivery Instruction Slip (DIS) with details like the recipient’s Demat account information and the stock quantity.
Both parties, you, the donor, and the recipient, need to have Demat accounts with the same depository participant. Also, you can consider using the Securities and Exchange Board of India’s (SEBI) Gift Deed format to document the transfer.
Mutual Funds
Yes! You can also go with Mutual Funds if you are looking to give financial gifts. These are ideal for those who prefer a diversified investment approach as mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. Like stocks, gifting mutual funds is also a straightforward process. First, you need to understand the recipient’s goals. So, before selecting a mutual fund, make sure to understand the financial goals of your near and dear ones.
Whether it is long-term wealth creation, education, or retirement planning, you need to choose the right fund for your loved ones that aligns with their objectives. Next, you have to ensure the recipient completes the Know Your Customer (KYC) formalities with the chosen mutual fund house. Now, choose a mutual fund that suits the risk appetite and financial goals of the recipient. Many mutual fund houses and financial platforms in India offer online services to invest in mutual funds. You can use these platforms to gift mutual fund units to your near and dear ones by providing their details during the investment process.
Life Insurance
This is quite a popular choice for investment in India! That’s the reason you can choose to give a life insurance plan to your loved ones. Life insurance would provide financial security to your loved ones in case of your untimely demise. Moreover, gifting life insurance is a thoughtful gesture as it ensures your near and dear ones are protected.
First, identify the insurance needs of the recipient and then choose a policy that aligns with their financial situation. You need to then assist the recipient in completing the application process. This involves filling out the application form, undergoing medical examinations if required, and submitting necessary documents. Now pay the premiums and meanwhile, clearly mention the nominee details in the policy to ensure a smooth claims process.
Health Insurance
We never know when we may face a medical emergency where we may need to take out our savings or personal funds for hospital bills. That’s why gifting health insurance can be another option for you. Health insurance is important as it helps you meet unexpected medical expenses. So, when you give it to your loved ones, you make sure they have access to quality healthcare. But before you buy one for them, ensure you consider factors like age, existing health conditions, and family size to determine the appropriate health insurance coverage.
Now, choose the right policy and apply for it. Provide accurate information and ensure that the medical check-up, if required, is rightly conducted. Similar to life insurance, you can choose to pay the premiums for a specific period or set up a system for the recipient to manage premium payments. Also, do not forget to keep a record of these policy documents and share them with your loved one.
Taxation on Gifting Financial Products
Gift Tax Exemption
Gifts received from specified relatives are exempt from tax in India. This includes financial products like stocks, mutual funds, and insurance policies. However, the gift value should not be greater than ₹50,000.
Capital Gains Tax
When the recipient eventually sells the gifted financial product, they would be liable to pay capital gains tax. The tax rate depends on the type of asset and the holding period.
Documentation
Proper documentation is also important when gifting financial products to ensure transparency and compliance with tax regulations. So, do maintain records of the gift deed, the transfer process, and any related financial documents.
