Mutual fund nomination: A comprehensive Guide

Gone are the days when mutual funds were considered a niche investment option meant only for savvy investors. Today, mutual funds have become a household name with investors from all walks of life parking their hard-earned money in these financial instruments. However, not many investors realize the importance of mutual fund nomination, a small but significant feature that can make a huge difference to one's mutual fund investments.
Read on to learn more about nomination in mutual funds and see why it is important.

• Table of contents

1. What is nomination in mutual funds?
2. Why is nomination important in mutual funds?
3. Who can be appointed as a nominee?
4. Who can’t be a Nominee?
5. How to nominate a person in mutual funds?
6. What happens in the absence of a Nomination?
7. Benefits of adding a Nominee to your Mutual Fund

What is Nomination in Mutual Funds?

Nomination is the process of appointing a person who will receive the mutual fund units after the demise of the investor. The nominee does not become the account holder or joint holder of the mutual fund units. They are only entitled to receive the units as per the nomination after submitting valid documents. Nomination can be made at the time of purchase of mutual fund units or later by submitting a nomination form. An investor can change the nominee at any time through a fresh nomination form. Investors can also opt out of making the nomination.

Why is Nomination Important in Mutual Funds?

• Quick Settlement of Claims: In case of the death of the mutual fund investor, the nominee can easily claim the investment by providing KYC documents and death certificate. Without a nominee, the claimant will have to go through a lengthy legal process to get ownership of the units transferred in their name. This takes several months usually. Nomination ensures a smooth and hassle-free settlement of mutual fund units to the intended person.
• Avoid Disputes Among Claimants: For long term wealth creation goals, mutual funds form a core part of one's portfolio. In the absence of a nominee, the fund house will transfer the units to the legal heir. If there are multiple legal heirs like spouse and children, conflicts can arise with the claimant. Nomination avoids any dispute between the claimant.
• Accurate Transmission of Units: Nomination ensures your mutual fund units are transmitted correctly after an investor’s demise. In the absence of a nomination, some legal heirs may be unaware of the mutual fund investments, and hence these may remain unclaimed. The AMC transmits the units solely to the nominee upon valid documentation. This prevents any loss of investments for legal heirs.
• Minor can be Appointed as Nominee: An adult investor can nominate a minor as their nominee. In that case, the units will be transferred to the guardian of the minor nominee. On attaining maturity, the nominee child can provide valid KYC documents and claim the mutual fund units.

Who can be Appointed as a Nominee?

• Individual(s): Spouse, child or parents can be nominated as nominee(s).
• Minor(s): A guardian can be appointed on behalf of the minor nominee.

It is advisable to nominate a major individual as the nominee for seamless transmission of units to intended persons.

Who can’t be a Nominee?

Companies, partnerships, trusts (except religious or charitable trusts), Hindu Undivided Families (HUFs), societies, or any other non-individual entity are not eligible for nomination.

How to Nominate a Person in Mutual Funds?

1. At the Time of Purchase: While filling the application form for investing in a new mutual fund, an investor can provide the nominee details in the nomination section. This will register the nominee in the new mutual fund purchase. Investors can also opt out of nomination.
2. Later through Nomination Form: An investor can change or modify the nominee later by filling up a nomination form available with the Asset Management Company (AMC) or registrar. One needs to provide existing folio details along with new nominee information.
3. Transmission of Units: KYC-compliant nominees can help quicken the transmission of units. Investors must ensure their nominee is KYC compliant for smooth processing.

What happens in the absence of a Nomination?

If there is no nominee designated, legal heirs of the deceased individual can claim the investment proceeds. However, this process typically involves multiple documents and legal ormalities, making it potentially time consuming.

Benefits of adding a Nominee to your Mutual Fund

Adding a nominee to your mutual fund investments offers several key benefits:

1. Smooth and swift transfer: In the event of the investor's death, a nominee ensures a quicker and easier transfer of funds, avoiding delays and legal complexities.
2. Reduced legal hassle: It reduces the need for lengthy legal procedures, such as obtaining a legal heir certificate, which can be stressful for the family.
3. Peace of mind: Knowing that your financial wishes will be fulfilled and your investments passed on smoothly provides reassurance.
4. Less scope for dispute: A clear nominee designation can help avoid disputes among family members over rightful claims.

Conclusion

Nomination is a critical aspect of mutual fund investing in India. By nominating a person, investors can simplify the claims process and prevent disputes over the ownership of mutual fund units. Investors should opt for nomination at the time of investment or later through a nomination form. Periodic review of the nominee can help ensure smooth transmission of mutual funds to the intended person.

FAQs:

Can an NRI nominate a person in India for their mutual fund investments?

Yes, an NRI can nominate an Indian resident as nominee for their mutual fund folios. The nominee needs to submit valid KYC documents to claim the units.

Can I change the nominee later?

Yes, you can change the nominee any time by submitting a fresh nomination form to the AMC. The new nomination will override older nominations.

What documents are required for the nominee to claim mutual fund units?

The nominee needs to submit a transmission request, death certificate of the investor, and their KYC documents. Additional documents may be required in certain cases.

Is it mandatory to add nominees in mutual funds?

Adding nominees to mutual funds in India is not mandatory but strongly recommended. It facilitates a smoother transfer of investments to beneficiaries and avoids delays or legal complications. If individuals do not wish to add a nominee, they have to explicitly opt out.

Can nominees withdraw mutual funds?

The nominee must submit necessary documents to the fund house, which then processes the transfer.

What are the new nominee rules?

SEBI has updated mutual fund nomination rules to simplify the process. Investors can now nominate up to 10 beneficiaries and specify either the percentage shares or absolute value of assets for each nominee. They must provide one of the following unique personal identifiers: PAN, last four digits of Aadhaar number or driver’s license. They also need to provide contact information and mention their relationship with the investor. However, individuals are advised to contact the Asset Management Company for more details about the process.

How many nominees are allowed in a demat account?

You can now nominate up to 10 beneficiaries for your demat account.

Mutual Fund investments are subject to market risks; read all scheme-related documents carefully. This document should not be treated as an endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.