Mutual funds offer a simple and effective way for individuals to invest their money and grow their wealth. However, many investors overlook a crucial aspect of mutual fund investments: Nomination.
Mutual fund nomination is a process that ensures your investments are transferred smoothly to your chosen individual(s) in case of your unfortunate demise. In this article, we will understand the importance of mutual fund nomination, how to add a nominee, who can nominate and be nominated, and key things to remember about this process.
Understanding mutual fund nomination can provide peace of mind and financial security for you and your loved ones.
What is mutual fund nomination?
Mutual fund nomination is a legal process that allows you to designate one or more individuals who will receive the proceeds of your mutual fund investments in the event of your death. It serves as a vital safeguard to ensure that your hard-earned money reaches your intended beneficiaries without any legal hassles or delays.
The procedure by which mutual fund units belonging to a deceased investor are transferred to a nominee is also referred to as transmission of units.
Why to add a nominee for a mutual fund?
Here are a few details regarding why you should add a nominee for a mutual fund:
- Smooth transfer: Adding a nominee ensures a smooth transition of your mutual fund investments to your chosen individual(s) after your demise without the need for legal intervention.
- Avoiding any dispute: It helps in avoiding disputes among family members regarding the distribution of assets.
- Easy access: Nomination enables quick access to funds for the nominee(s) during difficult times.
- No probate: It bypasses the lengthy probate process, saving time and effort for your beneficiaries.
- Financial security: Nomination provides financial security to your loved ones in your absence.
Latest SEBI regulation update (updated on 05/02/2024)
In accordance with a circular from SEBI dated June 15, 2022, it is mandatory for all current mutual fund investors to either update their nomination details or choose to opt out of the nomination process. The revised deadline for completing this process is now June 30, 2024, as opposed to the earlier deadline of December 31, 2023.
Failure to comply with this regulation will result in the freezing of your folios, thereby preventing you from redeeming your investments.
How to nominate in mutual funds?
According to AMFI or Association of Mutual Funds in India, nomination can be established either during the initial application for purchasing units or at a later stage.
For setting up a nomination while investing in a mutual fund for the first time, the applicant may complete the 'Nomination' section provided in the account opening application form. To register a nomination later, the investor must complete the designated Nomination form and submit it at the specified investor service center of the mutual fund or its Registrars.One such place to easily invest in mutual funds and add or change your nominations is the Bajaj Finserv Mutual Funds platform.
Once a nomination is established, it can be changed at any time and as many times as necessary.
An individual may nominate up to three persons and clearly specify the percentage of allocation/share for each nominee. The allocation/share should be in whole numbers without decimals. In case of equal distribution between 3 nominees the percentage will be 33.33% per nominee. If the percentage of allocation/share for each nominee is not provided, the AMC will distribute the claim equally among all the nominees.
The Nomination Form must be signed by the unit holder. If the units are held jointly, all joint holders must sign the nomination form, regardless of the account's mode of operation (i.e., whether 'anyone or survivor' or 'jointly').
Who can nominate, and who can be a nominee?
Here are a few details about who can nominate a nominee and who can actually be a nominee in terms of mutual funds:
Eligibility for Nomination
Individuals who hold Mutual Fund units, either singly or jointly, are eligible to nominate. However, individuals holding a Power of Attorney (POA) or acting as guardians for minors are not permitted to make nominations.
Eligibility to be a Nominee
- Nomination can be extended to anyone, including minors, with the provision of the guardian's details for minors.
- Non-resident Indians (NRIs) are also eligible to be nominees, subject to exchange control regulations.
- Nominees can include government bodies, local authorities, individuals by virtue of their office, or religious/charitable trusts.
Benefits of mutual fund nomination
- Simplifies the inheritance process: Having a nominee makes it easier for your loved ones to inherit your mutual fund holdings. Without a nominee, your assets would have to go through probate, which is a lengthy court process that can be expensive and time-consuming.
- Reduces family conflict: By designating a nominee, you can help to avoid arguments and disagreements among your family members about who should receive your mutual fund shares.
- May eliminate the need for a will: A nominee designation can act as a substitute for a will for your mutual fund holdings. This can be helpful if you don't have a will or if your will doesn't specifically address your mutual funds.
It is important to note that a nominee designation does not supersede a will. If you have a will, it will still control the distribution of your assets, including your mutual funds. However, a nominee designation can make it easier for your beneficiaries to inherit your mutual funds.
What happens in the absence of a nomination?
Without a nomination, managing the distribution of your mutual fund assets can be intricate, often involving legal formalities. Typically, your funds will be passed on to your designated legal heirs. This procedure can be lengthy, prone to disputes, and may cause delays, underscoring the significance of a well-defined and informed nomination to streamline the transfer of assets.
Misconceptions about mutual fund nomination
Several misunderstandings surround Mutual Fund Nominations that require clarification:
Nominee does not equal owner
A nominee does not automatically become the legal owner of the assets. Instead, they serve as custodians and facilitate the seamless transfer of funds to the rightful legal heirs.
Will vs. Nomination
A will and a nomination serve distinct purposes. A will encompasses all your assets and outlines their distribution, whereas a Mutual Fund Nomination specifically applies to your Mutual Fund investments.
Joint holders and nomination
Having joint holders on a Mutual Fund account does not imply automatic nomination. Nomination requires a separate and specific procedure to be established.
Key things to remember about mutual fund nomination
Here are some key things to remember about mutual fund nomination:
- Ensure consistency between your mutual fund nominee(s) and the beneficiary mentioned in your will.
- Choose nominee(s) whom you trust to manage your investments responsibly.
- Accurately enter the details of your nominee(s) to avoid any complications during the claim settlement process.
- Review and update your nominee(s) regularly, especially after significant life events such as marriage, divorce, or the birth of a child.
- Nominate multiple individuals and allocate the percentage of assets each nominee should receive, ensuring a fair distribution.
- When nominating a minor, designate a guardian who will oversee the investment until the minor reaches adulthood, ensuring their financial security.
- Modify your nomination details at any point during your investment journey by submitting a new nomination form to update the information.
- Only individuals who own units in their name, either individually or jointly, and initially made the nomination are eligible to cancel the nomination.
Conclusion
Mutual fund nomination is a crucial aspect of financial planning that ensures the smooth transfer of your investments to your loved ones in case of unforeseen circumstances. By understanding the importance of nomination and following the necessary steps to add a nominee, you can safeguard the financial future of your family members. Take the time to review your mutual fund nominations periodically and make updates as needed to reflect your current circumstances and wishes. Visit the Bajaj Finserv Mutual Funds platform and choose from over 1,000 different mutual fund options to invest and complete your nominations today.
