LEARNING CENTER
Level | Intermediate

What happens to my investments if something happens to me?

Sudha, 40, looks through Sudhir’s investment papers. Sudhir’s recent death has left an emotional void. Unfortunately, it has also left Sudha and their teenage daughter financially vulnerable. Sudha knows that Sudhir made a number of investments in mutual funds. On going through the documents, she finds investments in 10 different schemes. When she applies for redemption by signing on behalf of Sudhir, who had made himself the sole signatory to all these investments, she is told that Sudhir did not make any nominations for any of the investments. To receive redemptions, Sudha must go through a tedious process of submitting a host of documents due to the absence of nominations.

Don’t let this happen to your dependants. Making a nomination for all your investments is a must. This is especially critical in the case of single holding, as in Sudhir’s case.

Who can be a nominee?

You can nominate any family member, including your spouse, parents or children, or even a trusted friend to whom your mutual fund units will be transferred. The key is to select a person you can trust with the responsibility of managing your assets as you wish in the unfortunate event of your death.

Benefits of having a nominee

It’s advisable to make nominations for all your investments to avoid your heirs having to go through the hassle of establishing their rights to the investments. Failing to nominate will mean that the heirs must submit various documents such as a notarized copy of the probated will, indemnity bond, Know Your Customer (KYC) and No-objection Certificate from other legal heirs to get the units transferred in their name.

Nomination process

While investing in a mutual fund, you can fill in a nomination form providing details of your nominee. Earlier, if you didn’t make a nomination, you did not need to fill in this form. However, currently, this form also has a section where you must state specifically that you don’t wish to make a nomination. This is a clear instruction to the mutual fund regarding your intention with respect to nomination.

Number of nominees

You are permitted a maximum of three nominees for every mutual fund investment you make. You need to indicate the percentage share for each nominee, which should add up to 100%. The percentages should be whole numbers only (i.e. decimals are not permitted). For instance, you can give 33% to one nominee, but not 33.33%. However, if you don’t indicate the percentage share for each nominee, the mutual fund will allocate an equal share to all nominees.

When nomination is not permitted

In the case of an investment made in the name of a minor, nomination is not permitted. However, a minor can be made a nominee; the name and address of the minor’s guardian must be provided in this case. Nomination is also not permitted by non-individuals; corporations, trusts, karta of Hindu undivided family (HUF) and partnership firms, for example, fall into this category.

Single/joint investments

The units will be transferred to the nominee in the case of single holding or joint holding in the following manner:

- Single holding of units in the folio: The units will be transferred to the registered nominee on the demise of the single (primary) holder.

- Joint holding or more than one unit holder in a folio: In the case of an investment made jointly, all joint holders must sign the nomination form regardless of whether the holding is ‘joint’ or ‘either or survivor’. However, in the case of one of the investors’ demise, the benefits are transmitted to the surviving investor(s). Only in the case of the demise of all joint investors is the benefit transmitted to the nominee(s).

In the case of joint investments, on the death of one of the investors, the following documents must be submitted to the mutual fund:

  • A letter from the surviving investor(s) informing of the death of the investor.
  • A certified copy of the death certificate of the investor.
  • Address, bank details and permanent account number (PAN) of the other investor(s).
  • KYC of the other investor(s).

Validity of nomination

A nomination, once made, is valid for the lifetime of the investor unless he or she decides to change the nomination.

Changing your nomination

You have the freedom to change your nomination at any time. To do so, you need to fill in a fresh nomination form where you cancel the existing nomination and make a new one.

Note: If your investment has been made through a power of attorney (POA) holder, you will need to sign the nomination form; the POA holder is not permitted to sign the form on your behalf.

If you make a nomination in favor of a Non-Resident Indian (NRI), Reserve Bank of India (RBI) rules will govern this nomination.

Mutual fund’s responsibility

Once the mutual fund transfers the investment in favor of the nominee on the investor’s death, the mutual fund is no longer responsible for onward credit of the investment to the legal heirs.

Nomination charges

Mutual funds offer this facility for free.

Rights of the nominee

It’s important to note that a nominee does not become the rightful owner of the units merely through the nomination. The nominee is only considered to be an agent and trustee of the legal heirs of the investor, which will be as per the investor’s will.

Invoking the nomination

On the death of the investor, the nominee must submit the following documents to the mutual fund:

  • Proof of identity of the nominee (e.g. Aadhar card, passport, driving license).
  • A declaration and indemnity against any other claim, if the value of the investment is Rs 1 lakh or more.
  • A copy of the account statement of the investment in the fund.
  • Bank account details of the new unit holder(s), along with attestation by a bank branch manager or a cancelled cheque with the account holder's name.
  • Know your customer form of the claimant/new unit holder.

To reiterate, don’t put your dependents in Sudha’s position; make a nomination for your investments.

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Key Takeaways

  1. It's advisable to make a nomination for all your investments for the benefit of your heirs.
  2. Nominate a person you trust.
  3. While investing in a mutual fund, you need to fill in a nomination form.
  4. You are permitted a maximum of three nominees.
  5. In the case of an investment made in the name of a minor, nomination is not permitted.
  6. In the case of an investment made jointly, all joint holders must sign the nomination form.
  7. You have the freedom to change your nomination at any time.