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Importance of nomination in mutual funds

A person has died, and the family members are struggling to get various documents/approvals from various Government authorities to get the investments of the deceased person transferred in their name. You must have experienced, read, or seen this at some stage. It usually happens because the person did not nominate anyone for their investments. This […]
Importance-of-nomination-in-mutual-funds

A person has died, and the family members are struggling to get various documents/approvals from various Government authorities to get the investments of the deceased person transferred in their name. You must have experienced, read, or seen this at some stage. It usually happens because the person did not nominate anyone for their investments. This article will discuss the importance of nomination in mutual funds. Let us start by understanding what nomination is.

What is nomination in mutual funds?

Nomination is the process of appointing an individual(s) to take over your mutual fund investments after your death. Nominee(s) are also known as beneficiaries, as they will receive your assets after your death. Nomination helps to smoothly transfer your assets to your nominee(s) after your death. You can appoint your immediate family member, relative, friend, or anyone you trust as your nominee(s). The immediate family members include spouse, children, parents, siblings, etc. 

You can also appoint a minor as your nominee. In that case, you must provide the guardian’s name and address.

When can you do a nomination?

You can do a nomination when starting a new investment or any time later. You can modify the nomination whenever you want and any number of times you want. You can even cancel the nomination. However, it is recommended that you should always have a nomination. It is ideal to do the nomination when starting the investment itself.

Wherever there is a nomination, the AMC will not accept any request for transmission of mutual fund units from anyone other than the registered nominee(s). The exception to this is an order from a competent Court.

How to do a nomination?

You can do a nomination by filling out the nomination section when starting a new investment. For an existing investment, you can do a nomination by filling out and submitting the requisite form. While filling in the nomination details, you need to fill in the nominee’s name, date of birth, address, relationship, and percentage share of each nominee (if there is more than one nominee).

You can get the nomination form from the AMC, either online or offline. You can also download it from the AMFI website from the link below, fill it out, and submit it to the AMC. 

AMFI link for the nomination form: https://www.amfiindia.com/Themes/Theme1/downloads/MF-NominationForm.pdf

The above form has a provision for fresh nomination, change in existing nomination, and cancellation of existing nomination.

SEBI circular on nomination

On 15th June 2022, SEBI issued a circular on the nomination for mutual fund investors. SEBI has asked all AMCs to provide an option to mutual fund investors on the nomination. The unitholder has to submit either the nomination form or a declaration form for opting out of nomination. Although the unitholder can opt out of nomination, nominating someone you trust to take over your assets after your demise is highly recommended.

SEBI has asked all AMCs to set a deadline of 31st March 2023, by which all existing individual mutual fund investors have to either submit duly filled nomination forms (online or offline) or opt-out of the nomination. If any investor doesn’t comply, SEBI has asked AMCs to freeze all debits from their mutual fund folios.

Modification or cancellation of nomination

A mutual fund unitholder can modify the nomination at any time. Every nomination modification will overwrite the existing nomination. The unitholder can also cancel the nomination at any time. However, it is recommended that you should always have a nominee for all your mutual fund investments or any other investments.

Multiple nominees

A mutual fund unitholder can make a nomination in favour of multiple individuals, subject to a maximum of three nominees. The unitholder will have to specify the percentage of the allocation/share of each nominee in whole numbers without any decimals. If the allocation/share for each nominee is not specified, the allocation at the time of claim settlement will be made equally amongst all the nominees.

The total percentage allocation of all the nominees should add up to 100. If the total percentage allocation of all nominees doesn’t add up to 100, the nomination request will be considered invalid and rejected.

Benefits of nomination

Nomination ensures a smooth transfer of your assets to the nominee(s) after your demise. If there is no nomination, the procedure to transfer assets to legal heirs is quite lengthy, cumbersome, and expensive. So, if you don’t want your legal heirs to run around for your hard-earned assets after your demise, make sure you do a nomination. If you opt for nomination, along with your legal heirs, you will also have peace of mind as you will be sure that your assets will be passed on to the person(s) you wanted after your demise.

Death of the nominee

If a nominee(s) dies before the mutual fund unitholder, the nomination will automatically stand cancelled. In such a scenario, the unitholder should make a fresh nomination soon after the nominee(s) death. When there are multiple nominees, and one of them is deceased at the time of the unitholder’s death claim settlement, the deceased nominee’s share will be distributed equally amongst the surviving nominees.

Please don’t stop at nomination: Make a Will

Please note that a nominee is only the custodian or caretaker of an individual’s assets after their death. The actual beneficiary/beneficiaries is/are the person(s) mentioned in the Will or the legal heir(s), if there is no Will.

On the death of the unitholder, the AMC will pass on the assets to the nominee. That will discharge the AMC of all liability towards the estate of the deceased unitholder. The nominee has to pass on the assets to the Will beneficiary or the legal heir(s).

To avoid any disputes among your family members after your death, you must make a Will for all your investments, including mutual fund investments. In the Will, you should mention the beneficiary/beneficiaries and their percentage shares for all the assets. You can then appoint the Will beneficiary/beneficiaries as your nominee(s) for your mutual fund investments with the same percentage shares as mentioned in the Will. It will ensure your mutual fund assets are smoothly transferred to the persons you intended after your demise.

Be a responsible investor: Do nominate and make a Will

We have discussed the importance of nomination. However, you should not stop at just nomination. It is equally important to make a Will and make the Will beneficiaries as nominees. When you do that, you and your family will have much-needed peace of mind. To conclude, be a responsible investor by nominating and making a will.

Investing in mutual funds with the Glide Invest App

In this article, we have understood the importance of nomination for your mutual fund investments and other investments. You can partner with the Glide Invest App for your financial planning journey to get recommendations for the appropriate mutual fund schemes based on your risk profile. You will get advice on planning and systematically investing towards your financial goals

With Glide Invest, you will get guidance for:

  1. A personalised risk profile assessment
  2. Identifying your financial goals
  3. Appropriate asset allocation
  4. Making a financial plan for each goal
  5. Automating the financial plan
  6. Review and analysis of your financial plan 
  7. Hand holding you till your financial goals are achieved

To start investing towards your financial goals, download the Glide Invest App from Google Play Store or Apple App Store and get started.

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