Nomination in mutual fund

If you are an investor reading this article, you must be doing your investments with a purpose. Many a time, you invest to fulfil some of your goals, be it your next vacation, education of your children, their marriage, or even your own retirement. But in the unfortunate event of your untimely demise, it will be a waste in case you have made no nomination for those investments. Hence, a proper nomination is a must so as to ensure the benefits of your investments for your near and dear ones even if you are not around. It is advisable to do nomination for all of your financial assets, be it bank account, demat account or mutual funds.

Nomination in mutual fund
According to SEBI's Mutual Funds Regulations 1996, mutual funds are required to provide an option to the individual unitholders to make nomination. The nomination facility helps an individual unitholder (including the sole proprietor of a sole proprietary firm) to nominate a person who can claim the units held by the unitholder or the redemption proceeds thereof in the event of death of the unitholder. In case where units are held jointly, all the unitholders need to nominate a person jointly. In this case, the redemption proceeds are transferred to the nominee(s) only in the case of demise of all the unitholders. 



Who can be a nominee?
You can nominate anyone as your nominee; there is no hard and fast rule on who can be a nominee. He or she can be your spouse, child, another family member, friend or any other person you trust. Nomination facility is mandatory for new folios opened by individuals with single holdings. In case of joint holdings where there are more than one unitholder, it is not mandatory to have a nominee, but financial experts recommend that new folios should always have a nominee. 

There are certain restrictions, however, to whom you can nominate as a nominee. You cannot nominate a company or body corporate, partnership firm, Hindu Undivided Family (HUF), society or a trust (other than a religious or charitable trust) as a nominee. Other than the above, you may nominate any person, including a minor. In case where a minor is a nominee, the guardian of the minor will have to be specified in the nomination form. You can even appoint a non-resident Indian as your nominee; however, it would be 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 or any person designated by virtue of his/her office or a religious or charitable trust. 

How to nominate a person in a mutual fund? 

The process of nomination in the case of a mutual fund is very simple. An investor can register the nominee at the time of purchasing the units of the mutual fund. The application itself contains the nomination facility and the investor can fill up the nomination form to register the nominee. 

However, nomination once made either at the time of purchase of mutual fund units or after that can be changed at any time and any number of times. When you file a fresh nomination request with the fund house, it will override the previous one. 

In other words, if you file a request for a new nomination for a particular folio, the existing nominees will be simultaneously cancelled. 

For example, after your marriage, you can add your spouse as nominee, which will automatically cancel the earlier 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. 

In case mutual fund units are held in electronic (demat) mode with a depository, the nomination details provided by the unitholder to the depository will be applicable to the mutual fund units held in the demat mode. Such nomination, including any variation, shall be governed by the rules and bye-laws of the depository. 

An investor has the option to register up to three nominees in a folio and specify the percentage of the amounts that will go to each nominee. However, in case no specific percentage is defined, equal number of units will be distributed among the nominees. 

Another important point to note with regard to nomination is that it is done at the folio level, which means that for every folio, you can have different nominees and all the units in the folio will be transferred to the nominees of that folio. Moreover, in case any additional investment is made in that folio, the nomination will be applicable to the new units also. 

Benefits of Nomination
A proper nomination goes a long way in making the transfer of funds to the nominee of the deceased investor smooth and easy. It partially serves the purpose for which such investments were made. Nomination is a simple way to make things easy for your near and dear ones to claim the money in your mutual fund folio through minimal paperwork after your death. 

However, in the absence of a nominee, a legal claimant need to produce a host of documents such as Will, legal heir certificate, no-objection certificate from other legal heirs, etc. to get the units transferred or redeemed in his/her name. 

However, the mere mention of a nominee does not guarantee automatic transfer of funds or units in his/her name. To claim the units after the death of a unitholder, the nominee has to complete the necessary formalities, such as completion of KYC process, along with proof of death of the unitholder, signature of the nominee duly attested, furnishing of proof of guardianship in case the nominee is a minor, and such other document as may be required for transmitting the units in favour of the nominee. 

A word of caution is that a nominee is not a legal heir, and if there is a conflict between the nominee and the legal heir in the Will, the legal heir in the ‘will’ may prevail. In which case, a nominee is legally bound to transfer the assets to the legal heir. The nominee's job is just like a trustee who accepts the assets in the case of death of the owner and distribute the same to the legal heirs

Rate this article:
No rating
Comments are only visible to subscribers.

DALAL STREET INVESTMENT JOURNAL - DEMOCRATIZING WEALTH CREATION

Principal Officer: Mr. Shashikant Singh,
Email: principalofficer@dsij.in
Tel: (+91)-20-66663800

Compliance Officer: Mr. Rajesh Padode
Email: complianceofficer@dsij.in
Tel: (+91)-20-66663800

Grievance Officer: Mr. Rajesh Padode
Email: service@dsij.in
Tel: (+91)-20-66663800

Corresponding SEBI regional/local office address- SEBI Bhavan BKC, Plot No.C4-A, 'G' Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400051, Maharashtra.
Tel: +91-22-26449000 / 40459000 | Fax : +91-22-26449019-22 / 40459019-22 | E-mail : sebi@sebi.gov.in | Toll Free Investor Helpline: 1800 22 7575 | SEBI SCORES | SMARTODR