Mutual Fund Nomination: Why Is It Needed

Mutual Fund Nomination: A Step Towards Succession Planning  

You must have invested your money in mutual funds or any other asset class for a variety of reasons. First and foremost will be the wealth creation and second will be the family protection from any financial hardships. But have you ever thought about your succession? Have you ever thought about appointment of nominee for your various investment? If not, you must go through the following article. It will make you understand the importance of mutual fund nomination.

It’s always a good idea to plan your succession. And mutual fund nomination is a part of succession planning. You also have the option to encourage your spouse, or your parents to invest jointly in mutual fund. So, I will tell you the benefits of both things- joint investment and mutual fund nomination in this article.

What is Joint Investment

In a “joint account” or “anyone or survivor” mode, you can add another person’s name, straightaway. This person can be your spouse, your parent or your sibling. This makes them joint investor as well as joint owner. In the “joint account” mode, every action you take on your portfolio requires all account holders’ signatures. But in “anyone or survivor” mode, you can make switches, redemptions or any other action without their signatures.

What is mutual fund nomination 

Mutual fund nomination is a facility that enables an individual unit holder to nominate a person, who can claim the investment after the death of the unit holder. If the units are held jointly by more than one person, all joint unit holders are required to together nominate a person. This person i.e. nominee has all the rights over the investments made in mutual fund after the death of all the joint unit holders.

Mutual fund nomination: Can there be more than one nominee

According to capital markets regulator, Securities and Exchange Board of India’s (Sebi) norms, one can include up to three nominees. A person should clearly indicate the percentage of allocation/share in favour of each of the nominee against their names. Such allocation/share should be in whole numbers without any decimals. If the percentage of allocation/share for each of the nominees is not specified, the AMC will settle the claim equally amongst all the nominees.

Mutual fund nomination: Is it better than joint investment

You must note that the joint account holders are part-owners of investments. But the nominee is merely a trustee to the investment. In the order of hierarchy, if the primary holder dies, the joint account holder becomes the owner of the investment. But a nominee gets the money only when all joint account holders die.

In both these cases, transfer of investment in mutual fund requires some documents. These may include a covering letter, death certificate of the deceased, know-your-client (KYC) of the claimant and the new bank mandate details of the claimant. And, if the nominee inherits the investment, s/he needs to submit an indemnity bond in case the value of investments is greater than Rs.1 lakh. Having a joint holder instead of a nominee is considered better as it’s easier to pass the investments to inheritor (joint holder) in case of death.

Mutual fund nomination: Who can be a nominee

The nominee doesn’t have to be a family member. It can be your far relative or your friend. In case the nominee is a minor, the name and address of the guardian of the minor nominee shall be provided by the mutual fund investor making the nomination.

Even a non-resident Indian (NRI) can be a Nominee. Nomination can also be made in favour of the Central Government, State Government, a local authority, a religious or charitable trust. But, a Power of Attorney (PoA) holder and a guardian investing in mutual fund on behalf of a minor cannot nominate.

Mutual fund nomination: Who can not be a nominee 

If a guardian is appointed to take care of financial matters of a minor till he becomes a major, he can’t be a nominee in the same account. The nominee can not be a trust (other than a religious or charitable trust), society, company/body corporate, partnership firm, Hindu Undivided Family (HUF).

Mutual fund nomination: When can nomination be made 

Nomination can be made either at the time of initial application for purchase of mutual fund units or subsequently. To make a mutual fund nomination while investing for the first time, the applicant should fill up the ‘Nomination’ section provided in the account opening application form. And to register a mutual fund nomination subsequently, the investor needs to fill up the prescribed nomination form and submit the same at the designated investor service centre of the mutual fund or its Registrars. 

The Nomination Form is required to be signed by the unit holder (with hand-written signature). If the units are held jointly, all joint holders will need to sign the nomination form, irrespective of the mode of operation of the account (i.e., whether by ‘anyone or survivor’ or ‘jointly’).

So far units held in electronic (demat) mode with a depository is concerned, the Mutual fund nomination details provided by the investor to the depository will be applicable. In case a demat account has joint holders, in the case of death of any of the joint holder(s), the securities will be transmitted to the surviving holder(s). Only in the event of death of all the joint holders, the Units / securities will be transmitted to the nominee.



Mutual fund nomination: Can it be changed

Mutual fund nomination once made can be changed subsequently any time and any number of times. You can also de-nominate the person if you change your mind later. It may be noted that a nominee may not necessarily acquire any title or beneficial interest in the investment by virtue of this nomination. The nominee(s) receives the investment only as an agent and trustee for the legal heirs.

Mutual fund nomination: What are the benefits

In case mutual fund nomination is not made by a unit holder, the units would be transmitted to the account of legal heir(s). It will depend on the will made by the deceased person or as per applicable succession law. In the absence of a mutual fund nomination, a claimant may have to produce some documents to get the units transferred in his/her name.

These documents may include legal heir certificate and no-objection certificate from other legal heirs. It may involve lengthy, and sometimes expensive & cumbersome procedure, in case of legal dispute.

You can say that mutual fund nomination is a simpler and inexpensive way of succession planning. It makes things easy for one’s near and dear ones to claim the money invested in mutual fund, through minimal paper after one’s death. Therefore, investors must opt for the mutual fund nomination facility. It will help them to avoid hassles and inconveniences in case of unforeseen events in future.

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