Who Gets Your Mutual Funds When You Die

We make extensive financial plans to invest our hard-earned money for various financial goals. From choosing different investment avenues to balancing risk and return, investing takes meticulous planning. But what happens to your mutual fund investments after your demise? For mutual funds, the nominee usually receives the mutual fund units of the deceased. But in some instances, the nominee is not the legal heir. This results in long legal battles to establish rightful ownership. This article discusses who gets your mutual funds when you die and highlights the nominee vs. legal heir debate. Understanding these parameters will help you make wise choices and prepare for the future.

• In the event of the investor’s demise, MF units are transferred to the listed nominee(s).
  

• The nominee plays the role of a custodian until the funds are passed on the legal heir who possesses ownership rights.

• If there are no nominees listed, the units are transferred to the legal heir(s) on the basis of the deceased’s will or general succession laws.

Before we pivot to the difference between a nominee and a legal heir, it’s crucial to understand the meaning of each. In simple words, a nominee is a person you’ve selected to receive your mutual funds after your death. When you start investing in mutual funds, you must designate a nominee for your account. This may be your spouse, parents, or children. As custodians of your funds, your nominee is responsible for ensuring that your corpus reaches its rightful legal heir. In other words, nomination does not bestow ownership rights on the nominated individual.

A legal heir, on the other hand, is a person who is recognised as your successor by a will or the succession laws of the country. Legal heirs are entitled to receive all the assets of the deceased, including mutual funds. The Indian Succession Act of 1925 defines a legal heir as the deceased spouse, children, parents, or grandchildren. The Act was amended in 2005 to also include married daughters in the category of legal heirs.

From time to time, the Indian judiciary has ruled over the nominee vs. legal heir debate because of the prevailing confusion around these terms and their significance in the world of finance. However, the courts have ruled in favour of legal heirs, highlighting that their legal rights supersede those of nominees.
 

That’s why it is crucial for investors to understand the differences between nominees and legal heirs to know who gets their mutual funds if they die. Here’s a comprehensive nominee vs. legal heir comparison that sums up all their differences succinctly.

There can be three types of claimants to your mutual fund investments in the event of your demise. These 3 claimant categories and when they receive your investment is highlighted below:

• Joint account holders: If the account is a joint account, then your partner receives the funds after your demise. However, if all joint account holders die, the funds are transferred to the listed nominee. If no nominee is registered, funds are transferred to legal heirs.

• Nominees: Mutual funds are transferred to the nominee if a nominee is listed according to SEBI’s guidelines.

• Legal heirs: If no nominee is listed, the funds are transferred to the account holder’s legal heir.

Note: If there are multiple nominees or legal heirs, the proceeds are divided among them.

Legal heirs are easier to determine if you have a will in place before you die. A will is a legal document that formally highlights the person(s) to whom you wish to confer your assets, including your mutual fund investments. In simple words, a will helps you choose the person who shall receive your assets after your demise. It is important to note that a will supersedes all other claims, even those of nominees.

If you do not have a will, your mutual fund investments will be transferred to the listed nominee in your account. According to SEBI’s regulations, all new mutual fund investors must either opt in or opt out of the nomination facility at the time of opening the account. The due date for existing accounts was 30th June 2024. While investors can opt out of it, doing so may result in confusion in the event of the investor’s untimely demise.

Learning the differences between nominees and legal heirs is crucial before you can list a nominee for your mutual funds. It is also important to note that sometimes, the nominee may be the same as your legal heir. In such cases, the problem of asset transfer is completely eliminated. However, there may be instances where the nominee is not the rightful legal heir. If that’s the case, the actual legal heir may have to engage in a long legal battle to claim what’s rightfully theirs. Therefore, it may be prudent to list your legal heir as your mutual fund nominee to avoid these hassles.


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