Why mutual funds can be a smart investment strategy for HUFs

21 Apr 2023

India is recognized around the world for strong family ties. Generations of Indian families stay together under one roof and are known to invest time, love, and money in our families. But have you ever thought of investing money as a family?

What are Hindu undivided families?

As the term suggests, HUF is a single-family unit comprising all persons lineally descended from a common ancestor, including their wives and unmarried daughters. A HUF generally is led by anyone senior member of the family, commonly known as the Karta. The primary responsibility of the Karta is to manage the legal and financial affairs of the family. While governed under Hindu law, other religions like Jains, Sikhs and Buddhists can also legally form a HUF.

What is the financial source of income of a HUF?

A HUF can have various income sources, which could be income from the family business or rental income from property, interest on fixed deposits, savings, etc.

If you and your family hold a large pool of idle funds, investing it will help you create wealth for the long-term financial security of your family members and future generations and can also provide significant tax benefits. 

For starters, it is essential to note that all family funds must be pooled in a single bank account in the name of the Karta. All transactions would be carried out with his/her approval and under his/her name.

Tax benefits for HUFs:

As per the income tax norms, a HUF is placed as a single entity just like an individual. Thus, the tax benefits which applies to an individual taxpayer also hold true for a HUF. A HUF qualifies for tax exemptions provided under Sections 80C, 80D, 80G of the income tax regulations. 

Accordingly, HUFs can also consider investing in various tax-saving funds. 

Can HUFs apply in mutual funds and invest in tax-saving funds?

The simple answer is yes, HUFs can generally get registered with the nearest KYC Registration Agency (KRA)y filing a duly signed KYC form with relevant documents like Pan of HUF; List of coparceners; Bank passbook/bank statement in the name of HUF; Photograph, proof of identity, proof of address and PAN of Karta All documents should be self-attested by the Karta. The list is not exhaustive, and there may be additional documentation that may be required.

Alternatively, a HUF can start investing in mutual fund schemes, based on financial goals and risk appetite with the help of zero-balance accounts available with a fund house like Kotak Mahindra Mutual Fund. All you have to do is follow the below steps 

Steps for HUF Purchase:

Visit: https://www.kotakmf.com/investor/ZeroBalance-PreLogin-Mobile-Submit 

Enter Your Name and Contact details and authenticate with OTP 

Select Create New Folio

Enter Your Personal Detail (PAN No| DOB| Mode of Holding & Tax Status) 

Select Plan (Direct | Regular)

Enter Payment Details (Bank Name| Account No | Account Type | IFSC Code) 

Summary - Review your details

We hope this article will be helpful to you!

Source: KMAMC internal research. Income Tax Act, 1961


These materials are not intended for distribution to or use by any person in any jurisdiction where such distribution would be contrary to local law or regulation. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions. 

Investors may consult their financial advisors and/or tax advisors before making any investment decision.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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© Kotak Mutual Fund.2024
Mutual fund investments are subject to market risks, read all scheme related documents carefully.
© Kotak Mutual Fund.2024
Mutual fund investments are subject to market risks, read all scheme related documents carefully.
© Kotak Mutual Fund.2024
Mutual fund investments are subject to market risks, read all scheme related documents carefully.