Importance of Nomination in Mutual Funds

Life can throw unpleasant surprises at any point in time. Especially, an untimely death can emotionally shatter the deceased's loved ones.No one can control the future, including the possibility of death. However, people can certainly organise things in a way that those who are left to live without the deceased are not subjected to unnecessary delays or harassment in finance-related matters.One such decision can be to make a nominee of your mutual fund. A mutual fund nomination facility helps in seamlessly transferring the mutual fund units of the deceased person to the nominated person.

Nomination in a mutual fund is the process of authorising a person to become the beneficiary of the mutual fund investments in the unfortunate event of the investor's death. It is now mandatory for single holding individuals to register a nominee when opening a new account.Note that nomination is not mandatory if two or more individuals jointly hold mutual fund units. However, it is still recommended to have a registered nominee.

A nominee can be anyone chosen by the mutual fund unitholder. You can choose your spouse, children, relatives, friends, or any other person to be your nominee. You can also choose a Non-Resident Indian (NRI) as the nominee.A minor can also be made a nominee, but the investor needs to provide the name and address of the nominee's legal guardian. You can also make a nomination in favour of the central or state government, local authority, a religious or charitable trust, etc.But you can’t make a nomination in favour of the following.

• Society
• Company/Body Corporate, partnership firm
• A trust other than a religious or charitable trust
• Hindu Undivided Family

You can make a nomination either at the time of initial application for purchasing fund units or any time afterwards.You can fill up the ‘Nomination’ section of the mutual fund form when you are applying for the first time. If you are an existing unitholder and haven’t registered a nominee for your investments, then you can fill up the prescribed nomination form and submit it to your mutual fund service centre or its registrar.In the case of jointly held units, all the joint holders mustunanimously nominate a person who will get the rights of the units after the death of all the joint holders.

A guardian investing in mutual funds on behalf of a minor and a holder of Power of Attorney can’t make nominations in a mutual fund.In the case of a minor, the minor will have the right to nominate anyone after attaining the age of majority.

If a mutual fund unitholder dies without nominating anyone for the units held, then the legal heirs of the deceased investor must face a lengthy legal process to acquire those units. The process can involve producing proof, such as a will, legal heir certificate, and a no-objection certificate from all the other legal heirs to get the mutual fund units transferred.On the other hand, a nominee becomes the owner of the investments after the investor dies. The nominee has to do the following simple operations to get control of the investments.

• Complete the required KYC process.
• Submit death certificate.
• Signature of the nominee with due attestation.
• Proof of guardianship in case the nominee is a minor.
• Any other relevant documentation.

Additionally, nomination makes the entire acquisition process inexpensive and quicker.

An investor can add or change a nominee at any time by sending an application to the mutual fund house office. The same can be done online as well by visiting the official website of the mutual fund.

A mutual fund investor is allowed to have a maximum of three nominees. You can also specify the percentage of the amount that each nominee will get. However, every nominee will get an equal share if the percentage is not mentioned.A wise person always prepares for the best but expects for the worst. A mutual fund nomination can help the loved ones of the departed soul to have time to cope with the loss without worrying about issues related to rights and control of investments.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.