Move over regular gifts! Gift your sister stocks, MF units this Rakhi

The entire country celebrating Raksha Bandhan today. But are you one of those elder siblings still mulling and stuck over the perfect gift to give your younger ones? Well, then it is time for you to move beyond your traditional gift ideas like sweets, gadgets, clothes, and jewelry, and invest in their future prosperity. How? By gifting them stocks, or even mutual fund units.

Here's a deep dive into how you can lay the foundations of a lasting bond with your siblings, and cement their financial future, one stock and one mutual fund unit at a time.

How can I gift shares ?

You can swiftly transfer shares online, provided both you and your siblings have a demat account. Many brokerage firms like Zerodha, Groww and others also offer this facility.

For this, you will need to input details like your sibling's name (who you wish should receive these shares), particulars of their demat account, the amount of shares you wish to give as gift, and the name and 12-digit ISIN number of the company whose stocks you want to transfer.

In addition, you will also have to provide the beneficiary owner ID of your siblings, reason for transferring these shares, and bank account details. In order to kickstart the process, you'll have to initiate what is known as an off-market settlement. This means without the stock exchange coming into the picture, two parties i.e. you and your sibling will mutually settle shares.

For this, you will have to submit a delivery instruction slip (DIS) to your DP, or depository participant, which serves as a bridge between you and the depository. When you are transferring shares, you are essentially transferring your ownership of such stocks to them, and thus, you need to inform your DP and depository of the same. At present, there are only 2 depositories present in the country, namely NSDL and CDSL.

You can submit this DIS both online and offline. If you have more than one siblings you wish to transfer shares to, remember to use separate DIS for each recipient's account.

Once you initiate the transfer, your broker will send an email and SMS to the recipient, who will have 7 days to accept this. But remember, once you've transferred these shares, there is no provision to revoke this transfer. And just like with your clothes, accessories and everything else in life, your siblings will have full freedom and ownership to do whatever they deem fit with these shares!

However, what you can certainly do, and make this gift more meaningful, is drive home the value of holding these securities for the long term, so that they are able to make the most of this investments.

Ideally, a good start would be to start investing in stocks of large-cap, blue-chip companies, and them eventually complement them with small and midcap stocks, which offer higher legroom for growth.

Per brokerage firm Master Capital Services Ltd, "consider choosing stocks from well-established companies with a solid track record and growth potential. It is essential to consider risk tolerance, investment horizon, and financial goals before selecting stocks for your brothers and sisters. The finest present you could give your siblings this year would be long-lasting financial stability".

If you're looking for some stock recommendations you can consider for your siblings, we have you covered as well:

Larsen & Toubro Ltd.

Why you should consider this? The company has shown consistent revenue growth and profitability in the past years while maintaining stability with its ROCE & ROE of around 19% and 15%. L&T has a significant global presence, with projects and operations in various international markets. This geographic diversification helps in tapping into global opportunities and reduces dependence on the domestic market.

HCL Technologies Ltd.

Why you should consider this? HCL Technologies is one of the IT giants of India, which is ranked amongst the top five Indian IT services companies in terms of revenues. HCL offers a wide array of IT, business services, engineering, R&D services, and software products with operations in 60 countries. The company has been investing heavily in digital technologies, including cloud computing, artificial intelligence (AI), and automation. This focus aligns with current industry trends and positions the company to capture growth in the high-demand areas.

TATA Motors Ltd.

Tata Motors Limited is a leading manufacturer of automobiles and one of the largest OEM in India offering a wide range of passenger and commercial vehicles. Tata motors owns the flagship brand of Jaguar and Land Rover (JLR) which is a dominant automobile player in the global market. Its early entry in the electric vehicle segment has positioned it well ahead of many competitors and currently, it enjoys the largest market share in the EV segment in India. The focus on innovation and sustainability, along with a robust product lineup, positions Tata Motors well for future growth and market opportunities.

Tax Implications of gifting shares

The best part about gifting shares is that it is tax-exempt, since you're giving it to your relative. This means your sibling will not be liable to pay any taxes on this gift.

However, to be on the safer side, make sure that the market value of the shares that you gift them does not exceed Rs 50,000, or else your siblings, i.e. the recipient will have to incur a tax liability. If your siblings decide to sell these gifted shares, they will have to pay LTCG (long-term capital gains) tax at the rate of 12.5%, or STCG (short-term capital gains) tax at the rate of 20%, depending on how long they hold these securities for.

Gifting mutual fund units?

Unfortunately, you cant transfer your mutual fund units to your siblings. The transfer of mutual fund units is only possible in case the unitholder passes away.

But the one thing you can certainly do is start an SIP, or systematic investment plan (SIP) in their name. With as much as Rs 5,000 per month, invested over a period of 10 years, you 'll have invested Rs 6,00,000 for you siblings, which would have earned returns worth Rs 5,61,695, taking their total corpus to Rs 11,61,695. You can even start an SIP with just Rs 500/month in their name. You can nudge them into continuing this, so that you instill the value of financial discipline and long-term investing in them.

Remember, at the end of the day, the true value of your gift lies not just in its monetary worth, but in the knowledge, responsibility, and financial acumen that you will pass on to your siblings. So, this Rakshabandhan, consider tying not just a rakhi, but also a knot of financial empowerment.