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Mutual Fund Nominee Registration - Everything You Need To Know - Outside View by PersonalFN

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Mutual Fund Nominee Registration - Everything You Need To Know
Nov 27, 2017

Mortality is certain.

However, it is the least discussed of human events and one that most people avoid thinking about. We are uncomfortable talking about death and hence, fail to plan for surviving loved ones.

"I am not worried about nomination because I do not have huge asset holdings."

"I still have years to retire and draw-up a succession plan."

Many investors have such misconceptions. They take for granted the length of their lifespan and are, therefore, lackadaisical about succession planning. After the death of loved one, the family goes through emotional turmoil. During this time, the process of claiming any settlement can be a draining exercise.

To avoid putting your family through this hardship, it is imperative to appoint a nominee for your mutual funds investments.

Yes, it's true!

You can now assign a nominee for your mutual fund investments. In this way, you ensure that the money invested is easily settled and handed over to the nominee/s after your death.

What is Nomination Facility?

Nomination is a facility that enables you, an individual unit-holder, to nominate a person who can claim the transfer of your Mutual Fund Units thereof in the event of your death.

If the Units are held jointly, say by you and your spouse, then together you can nominate a person who in turn will have the rights to the units in the event of the death of both the joint unit holders.

Many mutual fund houses have made nominations for new folios/accounts opened by individuals mandatory, especially with single holdings. No new folios/accounts for individuals in single holdings are allowed without nomination.

Moreover, if you do not wish to nominate anyone as your nominee, then you must sign a non- intention to nominate form separately to confirm this and submit it to the AMC.

Below are the terms & conditions specified under the CAN Transaction Form - Nomination:

Investors should opt for the nomination facility to avoid hassles and inconveniences in case of unforeseen events in future. Through this facility, the MFU / AMC is not in any way attempting to grant any rights other than those granted by law to the nominee(s). A nomination in respect of the Units does not create an interest in the property after the death of the Unit holder. The nominee(s) shall receive the Units only as an agent and trustee for the legal heirs or legatees of the deceased Unitholder as the case may be...

Hence, the nominee will act only as an agent of the original owner.

Who can be your nominee?

A nominee can be a person who is your family member, friend, or any another person whom you trust.

Any individual, including a minor, the Central Government, a local authority, any person designated by virtue of his office, a religious or charitable trust is eligible to become your nominee.

You can also nominate a non-resident Indian (NRI), which is subject to the exchange control regulations in force from time to time.

If your nominee is minor, then name and address of the guardian should be provided during registration.

Please note that you cannot nominate a non-individual, including societies, trusts, body corporate, partnership firms, the Karta of an HUF (normally the senior most member of the family), and the holder of a power of attorney (POA).

Some Exclusions:

The guardian of the minor is the one who takes care of all the financial affairs on behalf of the minor till he/she attains the age of majority. Hence, the guardian cannot be the nominee of the same account where the minor is the nominee.

When can you appoint a nominee?

You can appoint a nominee either at the time of the initial purchase of Mutual Fund Units or subsequently.

You can fill up the 'Nomination' section of the application form while making the initial subscription. Subsequently, you can submit the filled-up nomination form, usually available on the AMC website, and send it across to the AMC service centre or its Registrars.

How many nominees can an investor appoint?

You, the investor, are permitted to register three nominees in a folio. Further, you can also specify the percentage of the proceeds that will go to each nominee.

Here's an example, Mr Khanna nominated his wife and two children and divided the investment amount into 50% for his wife and 25% to each to his sons.

If in case you do not specify the percentage, the AMC will settle the amount equally among the nominees you've appointed.

Also, the nomination form is to be duly signed by all unit holders. In case it is held jointly, then all the joint holders need to sign the nomination form irrespective of the nature of holding (i.e. whether it is 'jointly' or 'either or survivor').

What if you do not appoint a nominee?

In the absence of a nominee, your legal heir or claimant will have to produce a host of documents such as Death Certificate, Will, Legal Heir Certificate, No-Objection Certificate from other legal heirs, etc.

Can you change or cancel nomination?

Yes, you can change your nominee at any given point of time. You can also cancel or remove a particular nominee from your investments by submitting the requisite forms.

Please note that you can cancel a nominee only if you hold units on your own behalf, singly, jointly, and if you made the initial nomination.

Additionally, a fresh nomination request will override the existing one. In other words, if you raise a request for a new nomination for a particular folio, the existing nominees will be simultaneously cancelled.

What are the benefits of appointing a nominee?

The process of nomination simplifies the transmission/settlement procedure after your demise. In the absence of a nominee(s), your claimant will have to produce a host of documents to have the units transferred on to his/her name. This unnecessarily adds to the stress while dealing with grief and other formalities.

What if you already have a Will?

Your nominee can act just like an agent. He or she cannot overrule the legal heirs. In simple terms, your legal heir is rightfully eligible to receive the proceeds.

So, if you have a Will, your nominee will act as the agent who facilitates the smooth transmission process and transfer of the assets to your legal heir/s.

A word of caution:

The nominee you appoint need not be someone who has knowledge of investments or legalities. He/she should be someone you trust and can rely on, which means, in case you have not written a Will, he/she can claim the redemption of funds.

Hence, it is preferable to appoint a nominee who will eventually become your legal heir or is the beneficiary of the Will as per the applicable succession law.

Ensure that the personal details such as name, address, date of birth, and so on are correctly added. You can also keep a copy of nomination form or the acknowledgement as evidence.

Ideally, it is possible to review and update your nomination at regular intervals. For instance, if you are married now, you can add your spouse along with your parents as a nominee. Or if you are divorced or widowed, you can cancel your spouse as a nominee. Additionally, you can also add your children as nominee in later years.

Mortality may be unsettling, but succession planning for assets, mutual funds, etc. need not be. Take the time to leave behind a legacy that takes care of your loved ones emotionally and financially.

Happy Investing!

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.


The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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