Why is nomination important in Mutual Funds and what is the process for it?

You may have many goals and dreams in life. You invest your hard-earned money to fulfil those dreams and aspirations. You may also invest to help your loved ones achieve their dreams—both during your life and in your absence.

Everyone has certain goals in life, some dreams to achieve. Every goal also needs some planning and not to forget, finance. One invests their hard-earned money to fulfil those dreams and aspirations, their own as well as their near and dear ones.

Life can be full of surprises. One would expect that after his/her demise, logically, you’re their investments would pass on automatically to their partner, or children. But in real life, it may not be an easy or seamless process. Let’s take the example of Rajiv Gupta to understand why.

Rajiv Gupta had created four different portfolios, one for his goals, one for his wife’s financial security, and the remaining to fund his children’s education. His Mutual Fund SIPs were also planned accordingly.

Luckily, Rajiv Gupta was wise enough to assign a nominee to each of his portfolios. With one simple step, i.e. nomination, Rajiv ensured that the portfolios will be transferred to the rightful nominee and his purpose is fulfilled in case of any eventuality.

Mutual Funds Nominations

Nomination is a simpler and inexpensive way to make things easy for one’s near and dear ones to claim the money in their mutual fund folio, demat account or bank account expeditiously, through minimal paper after their death.

A nomination in respect of the Units does not create an interest in the property after the death of the Unit holder. The rights in the Units will vest in the nominee(s) only upon the death of all Unit Holders. It may be noted that a nominee may not necessarily acquire any title or beneficial interest in the property by virtue of this nomination. The nominee(s) shall receive the Units only as an agent and trustee for the legal heirs or legatees as the case may be.

Is Nomination mandatory for Mutual Funds?

Nomination is mandatory for MF investors. With effect from October 1, 2022, new investors subscribing to Mutual Fund units would have to compulsorily assign a nominee or fill a declaration form to opt out of nomination. Existing investors too would have to either assign a nominee in their older investments or opt out of nomination by March 31, 2023. This is applicable irrespective of whether the investment is held individually or jointly. 

How to add nominees to Mutual Funds investments?

You can add or update the nominees in your Mutual Fund holding by submitting a physical request at the nearest AMC/RTA branch. Alternatively, it can also be done online on the AMC/RTA website or on mfcentral.com. Login to your account and choose the folio under which you want to add/update nominees. Fill in the nominee details like name and address along with the percentage of ownership each nominee will get. If no percentage is specified, each nominee will be eligible for an equal percentage. You will then receive an OTP as part of the two-factor authentication to verify the nominee updation request. Alternatively, the digital form can be signed using the e-Sign facility.

If you are not comfortable online, you can visit the nearest branch or Investor Service Center, of the Fund House to add/update nominee details in your folio. All you need to do is submit a written application or fill up the relevant section of the Common Application Form. You will need to specify the account/folio where you need to add/update nominees and the names of the nominees. In case of more than one nominee in an account/folio, you need to specify the percentage allocation of your investments between all the nominees. Also, in case of joint holding, all the unit holders will have to sign the form with their wet signatures.

Last words

Remember, if an investor doesn’t specify a nominee in his/her account or choose to opt out of nomination, the investments can only be claimed by the legal heir(s) of the investor after proving their legal heirship. This, however, can be a long-run process. Hence, it is advisable to have nominee/s in all your mutual fund investments to enable a smooth transfer of assets in case of an unfortunate event.

So get all your Mutual Fund investment accounts updated with Nominee details and save your family from the hassle of proving their legal heirship to claim your investments in case of an unfortunate event.