👍👍👍👍👍Mutual Fund: Avoid inheritance hassles for your heirs by appointing a nominee

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Avoid inheritance hassles for heirs, appoint a nominee

Mutual fund unit holders have until September 30, 2023, to either appoint a nominee or opt out. The deadline – it has been extended to December 31 for demat account holders – is crucial as nomination enables smooth transfer of assets and benefits in the case of the unit holder’s untimely demise.

Nomination essentially allows a person to claim units or redemption proceeds after the unit holder’s demise.

Consequences of non-compliance

Failure to nominate a beneficiary for your mutual fund (MF) investments can lead to the freezing of some transactions. “In case investors fail to register a nominee in a folio or opt out, that folio will be frozen and investors will not be able to carry out certain transactions in it,” says Priya Hariani, chief compliance officer (CCO), PPFAS Mutual Fund.

Hariani says that only debit transactions like redemptions, switches, systematic transfer plans (STPs) and systematic withdrawal plans (SWPs) will be impacted, not additional purchases or systematic investment plans (SIPs).

Delay in asset transfer: In the absence of a nominee, the transfer of MF units to legal heirs becomes a complex and time-consuming affair after the investor’s demise. “It may require legal documentation and can lead to delays in accessing the funds,” says Col. Sanjeev Govila (retired), chief executive officer (CEO), Hum Fauji Initiatives, a financial planning firm.

Legal complexities: In the absence of a nominee, the legal heirs might find themselves entangled in the probate process in a court to prove the legitimacy of their claim to the investments.

Shares and securities nominations have been introduced primarily to ensure a seamless transfer of assets to the appointed nominee upon the shareholder’s demise. The purpose is to avert any legal complications which may arise, say, due to the rights of the legal heirs of the deceased shareholder. “The validly appointed nominee is entitled to have the shares or securities transferred in their name upon the demise of the registered shareholder, who has appointed the nominee,” says Harish Kumar, partner, Luthra and Luthra Law Offices India.

Opt-out alternative

Those not inclined to appoint a nominee can submit an opt-out declaration and prevent their units from being frozen.

Investors who have not yet submitted their nomination information but wish to opt in or out can do so at the trading platforms of brokers or depository participants. One can also update nominations through CAMs and KFintech.

Joint ownership scenario

In the case of joint holdings, all holders must be KYC (know your customer) compliant to update nominations or to opt out.

“If the units are held jointly by more than one person, all joint unit holders are required to together nominate a person in whom all the rights to the units would vest in the event of the death of all the joint unit holders,” says Vijay Kuppa, CEO of InCred Money.

It’s prudent to appoint a nominee to avert hassles and inconvenience to the heirs in the event of the unit holder’s untimely demise.

As for who can be appointed a nominee, Govila says: “The qualification criteria for nominees in India primarily revolve around blood relations, trusts, organisations, minors, and non-resident Indians (NRIs), depending on the specific financial instrument and its associated regulations.”

In India, a blood relative can be a nominee, including parents, spouses, siblings, and children. Apart from blood relatives, trusts and registered organisations can also be appointed nominees.

NRIs can nominate fellow NRIs, resident Indians, or trusts as beneficiaries, subject to the instrument’s terms and conditions.

Indian laws also permit the appointment of minors as nominees. Says Govila: “In such cases, a guardian is often designated to manage the assets until the minor becomes a major (at 18). This ensures that the financial benefits are safeguarded and managed in a responsible manner for the minor’s future.”

Since not designating a nominee can put your family’s financial future at risk, do not miss the September 30 deadline.

Appointing a nominee

* Investors may appoint a nominee by completing and submitting a nomination form to the registrar and transfer agent (RTA) or mutual fund, even if they did not do so initially via a paper application

* CAMS & KFintech have enabled a facility to update nomination details online for all individual investors with non-demat folios

* Those who opened an account online may utilise platforms such as MF Utilities

* Investors may nominate or withdraw nominations through two-factor authentication on trading platforms provided by stock brokers or depository participants

* Investors may utilise the ‘online nomination option’ on the National Securities Depository Limited website