MF investors must share nominee details

Nomination can made in the initial application or when the folio is being created ie, at the purchase of units or subsequently. If missed at the time of investment, the investor could apply at any point of the time or alter it too

You must have seen, read or heard about the possible freeze of mutual fund (MF) investments if the nomination is not updated in the respective folios. It’s mandatory for all existing individual investors to declare nominee and the deadline to update the nomination or opt out (explicitly mention) across the MF is 30thSeptember, 2023. In case of the where the folios are not updated, the investor can’t transact ie, buy or sell their units from these MF folios.

Nomination is a process in which an investor appoints a person or persons who will receive the investment in case of the demise of the investor. The nominee could be anyone whether it’s a family member, friend or a colleague. Even a minor could be appointed as a nominee and in such instances, a guardian is appointed. Opting out of nomination declares that the investor has decided to not to name any. In such instances, the legal heirs would be eligible for the remaining proceeds at the time of death of the investor.

One must understand that the having been appointed as a nominee doesn’t translate into the right of the asset or MF units upon the death of investor to them but only act as a trustee and transfer funds to the legal heirs. It could simply mean as a caretaker or agent of the asset appointed by the investor. So, per law, nominee acts as a trustee till the assets are transferred to the rightful legal heir. However, a legal heir could also be appointed as a nominee.

The nominee could be changed at any point of time in the future by the investor or owner of the funds. In a MF investment or folio, up to three persons could be named as nominee but when there’re more than one person named then the proportion or share against each person must be also mentioned. Nomination prevents disputes and delays in claim settlement of death by establishing a clear title to the instrument. In case of a conflict, then the will would help decide the actual beneficiary. And in the absence of a will, the nominee and the legal heir contest in the court of law to prove their right of ownership.

Who cannot be a nominee in a MF?

A Power of Attorney (PoA) and a guardian investing in MF units on behalf of a minor can’t be nominees. So far as a minor is concerned, a guardian is appointed to take care of financial affairs of a minor till the minor attains the age of majority. A transaction made through the guardian during the period of child is a minor has to be ratified by the minor subsequent to attaining the age of majority. Hence, law doe3sn’t permit the guardian to be a nominee in the same account, as it shall be the sole discretion of minor after attaining the age of majority.

Nomination can made in the initial application or when the folio is being created ie, at the purchase of units or subsequently. If missed at the time of investment, the investor could apply at any point of the time or alter it too. As regards to the MF units held in electronic form (demat mode) with a depository, the nomination details provided by the unitholder to the depository will be applicable to the MF units held in the demat mode. Such nomination including any variation, cancellation or substitution of nominee(s) shall be governed by the rules and bye-laws of the depository.

Payments to the sums to the nominee in respect of a demat account shall discharge the MF of all liability towards the estate of the deceased unit holder and their legal successors/heirs. In case a demat account has joint holders, at the death of any of the joint holder(s), the securities will be transferred to the surviving holder(s). Only in the event of the death of all joint holders, the units/securities will be transmitted to the nominee.

Nomination is the simpler and inexpensive way to make things easy for one’s near and dear ones to claim the money of their MF folio, expeditiously, through minimal paper work after the investor’s death. To claim the units of the death of the investor, the nominee has to complete the necessary formalities like KYC process, proof of death of the unitholder, signature of the nominee duly attested, furnishing of proof of guardianship in case of minor nominee, etc.

(The author is a co-founder of “Wealocity”, a wealth management firm and could be reached at [email protected])