What is nominee

In the domain of finance, nominee refers to an individual who is entrusted with the safekeeping of the original’s investor’s securities or assets. It is a person designated as the custodian of the investor’s corpus in the event of the investor’s unfortunate demise. In this article, we explore the meaning of nominees, which investments offer a nomination facility, and why designating nominees is essential.

What is a nominee?

Nominee is a person who is listed to receive the investment proceeds after the investor’s demise. In other words, the nominee will be the beneficiary of the investments, assets, and/or estate. Nominees are the legally designated custodians of the assets who have to act on behalf of the deceased investor to ensure the smooth transfer of assets to the rightful person without legal issues. Nomination does not confer ownership rights on the nominee, unless the nominee is also the legal heir. Generally, nominees are selected from close family members like the investor’s spouse, children, or parents.

Key takeaways

• Nominee means a person entrusted with the duty of safekeeping the investor’s assets and investments in the event of the investor’s demise.

• Nomination does not confer ownership rights on the nominee unless the nominee is also the legal heir. The nominee acts as a custodian of the assets and securities.

• Popular savings and investment options like savings accounts, fixed deposits, PPF, and mutual fund investments offer a nomination facility to ensure the smooth transfer of assets.

Understanding nominees with an Example

Understanding the meaning of nominees in finance is crucial for asset management. Most types of investments allow you to enlist one or multiple individuals as nominees through a well-defined nomination process. The appointed nominee acts as a custodian of your investment, property, or funds in the event of your untimely demise. Essentially, appointing nominees ensures your assets remain safe and are passed on to the right people. The nominee ensures their distribution among your beneficiaries. In some cases, the nominee can also be your legal heir. If that’s the case, then the individual is not the custodian, but owner of the proceeds. In India, you can appoint nominees for savings accounts, fixed deposits, PPF, as well as Demat, and mutual fund investments.

Why is nomination important?

As mentioned earlier, nomination is a legal process that allows you to designate a custodian for your investments or assets. Appointing a nominee ensures a seamless and hassle-free transfer of your assets to your desired beneficiaries. In the absence of a designated nominee, distribution of assets will become extremely complicated, especially if you have multiple claimants to your investments. If no nominee is assigned, your family or legal heirs will have to go through a long and tedious legal battle to receive the investment proceeds after your demise. This would require your next of kin to produce succession papers, death certificate, and probates of will to prove their rights creating significant delays in the transfer process. Nomination helps bypass these issues, ensuring that your savings, investments, and assets reach the right person in a timely manner even in your absence.

What are the investments for which you can assign a nominee?

Once you have understood the meaning of a nominee, you can assign one for the following types of investments:

Life insurance policies

Life insurance policies are purchased to ensure that your loved ones remain financially secured in your absence. Therefore, listing nominees or beneficiaries for your life insurance policy is crucial. The insurance company pays the total insurance payout to your listed nominee/beneficiary after your demise.

Bank accounts

In India, you can also safeguard your liquid savings with a nominee. Banks generally offer a nomination facility for regular savings bank accounts. In such cases, the savings proceeds go to the listed nominee upon the account holder’s demise.

Bank fixed deposits

Fixed deposits are a popular risk-free investment instrument in India that offers a nomination facility. You can appoint a nominee for your bank FDs either at the time of opening the deposit account or on a later date. In the event of your unfortunate demise before the FD maturity date, the nominee enlisted will be entitled to both the principal and interest proceeds from the account.

Public Provident Fund

Public Provident Fund or PPF is a popular government-backed long-term investment option that offers attractive interest rates and tax-saving benefits. PPF also comes with a nomination feature, whereby you can designate a nominee for the account. All PPF accounts, except minor accounts, enjoy this perk.

Mutual fund investments

Mutual fund houses offer nomination facilities allowing investors to designate a person who can claim the units held by the investor or the redemption proceeds from the sale of these MF units in the event of the investor’s death. Essentially, this nomination facility in mutual fund investments makes it easier for your loved ones to claim the corpus built through your MF portfolio.

Do you have to make a nomination for all your investments?

Now that you understand what is a nominee and which investments allow nomination, let’s debunk if appointing one is a mandatory requirement. While appointing a nominee is not mandatory, listing one is financially prudent. By appointing a nominee for your investments, you ensure that your loved ones can claim your investment proceeds, property, or assets easily without going through lengthy legal proceedings.

According to SEBI’s latest regulatory revisions, all investors opening Demat accounts or mutual fund folios after 31st March 2023 have to designate a nominee or explicitly opt out of nomination. This decision was taken to ensure a smoother inheritance process upon the investor’s demise. Earlier, SEBI had also mandated freezing of existing accounts that have not nominated someone or explicitly opted out of nomination by 30th June 2024. However, this was later withdrawn. While existing Demat account holders and MF investors without a choice of nominee in place can continue enjoying dividends, interest payouts, and redemption proceeds, they are still encouraged to list a nominee.

How many nominees can you appoint?

From the meaning of a nominee it is clear that it's an individual designated to act as the custodian of your investments. While several investment instruments allow nomination, the specific number of nominees you can appoint for each varies. Here’s a break-down of how many nominees you can appoint for the different investment instruments discussed above:

Life insurance policies

Policyholders can enlist multiple nominees for their life insurance policy. This is especially helpful when you have multiple children or wish to distribute the sum assured among different family members. Each nominee is entitled to a certain percentage of the policy’s death benefit.

Bank accounts and FDs

Typically, bank accounts allow you to nominate just one individual per account. Usually, you can appoint different nominees for different accounts in the same bank. However, the specific nomination policies can vary based on the bank and the type of account in question. Additionally, the government is also expected to soon raise the number of nominees for deposit accounts to four.

Public Provident Fund

You can nominate more than one person for your PPF account. However, if you nominate more than one individual, you must clearly mention the percentage share receivable by each nominee.

Mutual fund investments

According to SEBI’s regulations, a maximum of 3 nominees are permitted for each MF folio. When you nominate more than one beneficiary, you must also specify the percentage share each nominee receives from your MF units.

Can you change your nominee at a later point in time?

Understanding what is a nominee thoroughly also means understanding if future alterations are possible. Designating a nominee does not mean you cannot change or alter your decision in the future. As an investor, you reserve the right to modify nominations for your investments as per your preference and changes in life. You can change nominees for your investments at any given time using the specific procedures outlined for the investment in question. For instance, for bank accounts and FDs, you simply have to visit the bank branch and fill physical paperwork to ensure a nominee update. In case of investments in mutual fund schemes, you can complete the nominee change online.

The benefits of having nominees in investments

Let’s understand why nomination is a key aspect of prudent fiscal planning:

Facilitates smooth asset transfer

Assigning a nominee for your investment ensures a smooth asset transfer. In the event of your unfortunate passing, the invested assets are seamlessly passed on to the designated nominee. This ensures zero delays and simplifies the transfer process by eliminating lengthy legal battles. Additionally, designating nominees for investments also helps minimise changes of disputes.

Reduces court hassles & legal complications

As mentioned earlier, selecting a nominee allows you to bypass time-consuming litigation and proceedings. In other words, the intended beneficiaries of your investment receive it faster without going through the hassles of running to court, years of litigation, and legal expenses.

Safeguards investor’s intentions

Nomination is an easy way of ensuring your interests are preserved even in your absence. For instance, if you are investing in mutual funds to save for your child’s higher education, enlisting your spouse as the nominee will ensure that the money will be used for its intended purpose. Similarly, if you have multiple children, nomination helps in outlining how the assets will be distributed. In short, nomination is key to honouring and executing the wishes of the deceased investor.

Efficient handling by financial institutions

Apart from benefiting the investor, nomination also helps streamline operations for financial institutions. A designated nominee means a clear transfer plan in the event of an unfortunate and untimely demise. For financial institutions, this provides a definite and easier roadmap to asset transfers with zero ambiguity.

Provides financial security for beneficiaries

As investors, we make investments to secure the financial futures of us and our loved ones. Nomination is simply a proactive measure that helps ensure that your family gets to enjoy this financial security. By simplifying the transfer process, nomination ensures that your investments and their proceeds reach their intended recipients.

Conclusion

In summation, nomination is a critical part of sound financial planning. Most investment instruments like savings accounts, FDs, PPF, and mutual funds offer a nomination facility to streamline the transfer process in the event of the account holder/investor’s untimely demise. Depending on the type of investment in question, you can designate one or more nominees to ensure a smooth transfer of your assets and investment. Exercising your right to nominate a custodian for your investments essentially ensures that the funds reach their intended hands and reduces the stress of court hassles and unnecessary delays.

If you have mutual fund investments, you should enlist nominees for the same by contacting your DP. However, if you haven’t started investing in MFs, you can do so via the Bajaj Finserv Mutual Fund Platform. This smart and intuitive platform allows you to compare 1000+ mutual funds and start with simple SIP investments of Rs. 100 only!