Have you added a Nominee to your mutual fund Investments?

It is likely that you have added a nominee to your investment. The intention is that in case something happens to you, that is, death, then the nominee can take control of the investment.

This is great. However, there are several misconceptions regarding what a nominee is entitled to or not. In this post, we clarify on the role of the nominee in mutual funds.

As per law, the role of a nominee is to receive the investments or assets on the death of the original owner(s) and then distribute it to the legal heirs as per claims or as defined by a Will, if there is one. The nominee can also be a legal heir but the rules apply.

Here’s what the terms and conditions of the Common Account Number application form –

Investors should opt for the nomination facility to avoid hassles and inconveniences in case of unforeseen events in future. Through this (nomination) facility…(we) are not in any way attempting to grant any rights other than those granted under law to the nominee(s). A nomination in respect 0f (mutual fund) units does not create an interest in the property after the death of the Unitholder. The nominee 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.

The terms specify clearly that nomination does not provide ownership in the investment. It only allows the nominee to act as an agent of the original owner. 

From an AMCs point of view, once the original Unitholder dies, the AMC does a transmission of the units to the nominee and it is considered as a valid discharge against the legal heirs.

The transmission is carried out after submitting the necessary documents as required by the AMC including Death Certificate of the original holder, Proof of Identity of the Nominee along with the Proof of address.

Is adding a nominee mandatory?

For several mutual funds, nomination is now mandatory for new folios/accounts opened by individual especially with sole holding. No new folios/accounts for individuals in single holding are to be opened without nomination.

Even those investors who do not wish to nominate must sign separately confirming their non-intention to nominate.

What happens in the absence of a nominee?

In the absence of nominee, a claimant has to produce a host of documents like a Will, Legal Heir Certificate, No-Objection Certificate from other legal heirs etc. to get the units transferred in his/her name.

Does the nominee need to provide consent for the nomination?

A signature or consent of the nominee is not required. However, it is best if the nominee is aware of the nomination.

Is it better to have a Joint Holder or a nominee?

A joint holder gets ownership rights in the asset/investment. If the joint holder is a spouse, as a natural heir, the ownership of the remaining asset devolves to the spouse. However, for any one else, the legal heirs of the deceased holder can make a claim on that part of the asset/investment.

As a nominee, a person can act only as an agent.

Can a Will override nomination?

Yes, the legal heirs and their benefits as defined in a Will override those mentioned in a nomination. The nominee, in case where a Will exists, is only an agent to receive and transfer the assets/investments to the rightful legal heirs.

Here are some more relevant guidelines on nomination:

• Nomination can be made only by individuals applying for / holding Units on their own behalf singly or jointly.
• Non-individuals (including societies, trusts, bodies corporate, partnership firms, etc.), Karta’s of Hindu Undivided Families (HUF) and holders of Power of Attorney cannot nominate.
• Nomination facility is not available for investments held on behalf of minor.
• A minor can be nominated, and in that event, the name and address of the guardian of the minor nominee is to be provided by the Unit Holder.
• Nomination can also be 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.
• The nominee shall not be a trust (other than a religious or charitable trust), society, body corporate, partnership firm, Karta of HUF or a Power of Attorney holder. An NRI can be a nominee, subject to the exchange controls in force from time to time.
• Nomination in respect of Units stands rescinded or cancelled upon redemption of the Units.
• Cancellation of nomination can be made only by those individuals who hold Units on their own behalf singly or jointly and who made the original nomination.
• On cancellation of the nomination, the nomination shall stand rescinded and the AMC shall not be under any obligation to transfer the Units in favour of the nominee(s).
• The nominee can claim rights in the Units only upon the death of all Unit Holders.
• Nomination can be made in favour of more than one, and upto three individuals. Investors who desire to make nomination in respect of multiple nominees should clearly specify the percentages to be allocated between the nominees.
  • If no percentages are mentioned, nomination will be done equally for all the nominees.
    Nomination will be maintained at the folio or account level and will be applicable for all investments in the folio or account.
• Where a folio has joint holders, all joint holders have to sign the request for nomination/ cancellation of nomination, even if the mode of holding is not “Joint”. Nomination form cannot be signed by Power of attorney (PoA) holders.
• Where a folio has joint holders, all joint holders have to sign the request for nomination, even if the mode of holding is “Anyone/Survivor” or “First/Survivor”.
• A new nomination request implies simultaneous cancellation of existing nomination and request for fresh nomination.
• Applicants who do not wish to nominate, must sign at the designate space confirming their intention on not to nominate. If this is not done the form may be rejected by the AMC/ Fund.

Review of nomination

Finally, it is ideal to review your nomination from time to time to update the relevant records. For example, once you are married, you may want to add your spouse’s name instead of or additionally to your parents too.

In later years, your children could also become nominees for some of the investments.

So, do your investments have a nominee?