Transferring mutual fund units to children has become a more regulated process following the introduction of the Income Tax Act, 2025, and updated SEBI mandates. Parents must now ensure that mutual fund units are held in demat accounts, as gifting them through physical records is no longer permitted. While the act of gifting itself is non-taxable, the tax implications shift to future capital gains when the child eventually liquidates the assets. Additionally, any income generated from these assets will be taxed under the highest-earning parent's income until the child reaches the age of majority, with only a small annual exemption allowed. To facilitate a successful transfer, parents should adhere to formal steps, including transitioning holdings to demat, executing a gift deed, and following off-market delivery instructions. These measures are essential for compliance and to prevent financial malpractice.