Why Choosing A Nominee For Your Mutual Fund Is Crucial For Your Family’s Financial Security

By Kashmira Kalwachwala

When an investor passes away, their mutual fund units can be transferred to a nominee(s) ; someone(s) they’ve officially designated. If no nominee is assigned, the family may face a long and complex legal process to claim the investments, often involving succession certificate, probate of will, legal heirship certificate or other legal documentation.

What is Nomination?

Nomination is a facility that allows mutual fund investor(s) to nominate up to 10 persons (who will receive the mutual fund units in the event of their death) and indicate the percentage of allocation in favour of each of the nominee against their name(s). In the event the percentage of allocation for each of the nominees is not specified, the AMC shall settle the claim equally amongst all the nominees.

Why Nomination Matters

1. Easy Transfer of Mutual Fund units: Nomination enables the designated person(s) to claim the units without lengthy legal procedures. This is especially helpful during emotionally and financially challenging times
2. Financial Security for Loved Ones: The nominee receives the assets promptly, offering financial support to the family when they need it most
3. Avoids Legal Complexities: Without a nominee, legal heirs may need to produce a probate of the will or obtain a succession certificate, which can be time-consuming and expensive
4. Saves Time and Money: Nomination simplifies the process, reducing paperwork and legal costs associated with transmission of units
5. Peace of Mind for Investors: Knowing that your investments will be passed on to someone you trust brings comfort and assurance to the investors.

Who can nominate?

Nomination can be made ONLY by individuals applying for/holding units on their own behalf singly or jointly. Nomination shall be mandatory for single holding folios only. The requirement for nomination is optional for jointly held folios.

How to nominate?

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

Investors can submit their nomination either online or through physical mode. Nominations once made can be changed subsequently, any time and any number of times.

Who can be a nominee?

Other than a company/body corporate, partnership firm, Hindu Undivided Family (HUF) , society or a trust (other than a religious or charitable trust), one may nominate any person including a minor.

In case the nominee is a minor, the name and address of the guardian of the minor nominee shall be provided by the customer making the nomination.
Even a non-resident Indian (NRI) can be a Nominee, subject to the exchange control rules in force, from time to time.

Nomination can also be made in favour of the Central Government, State Government, a local authority, any person designated by virtue of his/her office or a religious or charitable trust.

Rule of Survivorship

In case of units held in joint names, upon the demise of one or more joint holders, the units will be transmitted to the surviving holder(s).

The surviving holder(s) shall have ownership rights to the said units and not as trustees.

The surviving holder(s) can continue with the existing nomination(s) or can request for a change in nomination.

How Nomination Works in Mutual Funds

If a nomination is registered, the nominee(s) can claim the units by completing formalities such as:
KYC compliance
Submission of death certificate
Submission of bank account details
Attested signature of the nominee
Proof of guardianship (if the nominee is a minor)
Any other documents required by the Asset Management Company (AMC)

Nomination in Demat Mode

For mutual fund units held in electronic (demat) form: The nomination registered with the depository applies to all mutual fund units held in demat mode.
Changes to nomination (addition, cancellation, or substitution) are governed by the depository’s rules. If the demat account has joint holders, units are transmitted to the surviving holder(s). Only upon the death of all joint holders will the nominee receive the units.

Legal Implications of Nomination

A nomination does not create ownership rights. The nominee acts as a trustee for the legal heirs. Nomination is rescinded upon redemption of units.
A new nomination request automatically overrides the previous one.

Only individual investors holding units singly or jointly can make or cancel nominations. Payment to the nominee discharges the AMC and mutual fund from any further liability toward the estate of the deceased.

If any legal claims arise due to nomination, the mutual fund, AMC, or trustee is entitled to indemnification from the investor’s estate for any losses or expenses incurred.

Final Thoughts

Nomination is a simple yet a powerful tool to protect your investments and ensure they reach your loved ones without unnecessary delays. It ensures a smooth and hassle-free transfer of assets, avoiding legal delays and complications.

It’s a small step that can make a big difference during difficult times.

Tip: Review and update your nominations regularly to reflect changes in your personal circumstances.

(The author is Head-Investor Services, Tata Mutual Fund)

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