Nominations in Mutual Funds - Importance, How to do
What is a Nomination?
Nomination is the process of designating a person to receive the benefits of an asset or account upon the death of the original owner. This is an important legal step that ensures the smooth transfer of assets to the intended beneficiaries.
In the context of financial instruments like life insurance policies, bank accounts, Public Provident Fund (PPF), Employees' Provident Fund (EPF), mutual funds, and stocks, a nomination allows the account holder to specify who should receive the proceeds or ownership of the asset after their passing.
Importance of Nominations
Nominations are crucial for ensuring your assets and benefits are distributed according to your wishes. Some key benefits of making nominations include:
- Faster Claim Settlement: Nominated beneficiaries can typically access the funds or assets more quickly, contrary to lengthy legal procedures.
- Avoiding Disputes: Nominations may help prevent potential conflicts among legal heirs over the distribution of assets.
- Protecting Dependents: Nominations ensure your loved ones, especially financial dependents, are taken care of in case of any unforeseen event.
Steps to do Nominations in Mutual Funds
1. Nomination can be made either at the time of initial application for purchase of Units or subsequently.
2. To make a nomination while investing with a mutual fund for the first time, you may fill up the ‘Nomination’ section provided in the account opening application form.
3. To register a nomination subsequently, you need to fill up the prescribed Nomination form and submit the duly completed Nomination form at the designated investor service center of the mutual fund or its Registrar and Transfer Agents Website/Centers.
4. To add a nominee for your Mutual Fund Folios, key details to be provided are: a. Name of the nominee
b. Date of birth of the nominee
c. Nominee’s relationship with the investor
d. Address of the Nominee
e. PAN of the nominee
f. Percentage share of each nominee (if there is more than 1 nominee), etc. You can add up to 3 nominees in one mutual fund folio and specify the percentage share that each nominee will receive in the event of your death. If you do not specify the percentage share, your Mutual Fund units will be equally distributed among all the nominees mentioned in the nomination form.
Who can Nominate?
Nomination can be made ONLY by individuals applying for/holding units on their own behalf singly or jointly.
Who cannot Nominate?
A Power of Attorney Holder (PoA), non-individuals and a guardian investing in mutual fund units on behalf of a minor cannot nominate.
A guardian is appointed to take care of financial affairs of a minor till the minor attains the age of majority. Transactions made through the guardian during the period a child is a minor has to be ratified by the minor subsequent to attaining the age of majority. Hence, law does not permit the guardian to be a nominee in the same account, as it shall be the sole discretion of the minor after attaining age of majority.
Who can be a Nominee?
Other than a company/body corporate, partnership firm, Hindu Undivided Family (HUF) , society or a trust (other than a religious or charitable trust), and government offices, one may nominate any person including a minor. In case the nominee is a minor, the name and address of the guardian of the minor nominee shall be provided by the investor making the nomination.
Few things to remember regarding Mutual Fund Nominations
- According to the SEBI circular - “Nomination for Mutual Fund Unit Holders” dated June 15 2022, investors subscribing to mutual fund units on or after Oct 1, 2022, shall have the choice of:
a. Providing nomination in the format specified in fourth schedule of SEBI (Mutual Funds) Regulations, 1996 (or)
b. Opting out of nomination through a signed Declaration form available on the AMFI website. For investors who had not nominated or opted out of nomination before June 30,2024, the folios/demat accounts were frozen. To further redeem or liquidate the investments, the investors would have to update their nomination or opt out of nomination.
c. The requirement for nomination is made optional for jointly held mutual fund folios. - The rights in the Units will vest in the nominee(s) only upon the death of all Unit Holders. It may be noted that a nominee may not necessarily acquire any title or beneficial interest in the property by virtue of this nomination. The nominee(s) shall receive the Units only as an agent and trustee for the legal heirs or legatees as the case may be.
- A new nomination request will result in simultaneous cancellation of existing nomination and replacing the same by fresh nomination, i.e., a fresh nomination for a folio/ account will automatically overwrite an existing nomination.
Conclusion
Mutual fund nomination is a crucial aspect of investing that ensures the smooth transfer of investments to the intended beneficiaries in the event of the investor's demise. By taking the time to nominate a trusted individual, investors can provide financial security and peace of mind to their loved ones.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully
Please note that this article or document has been prepared on the basis of internal data/ publicly available information and other sources believed to be reliable. The information contained in this article or document is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party in any manner. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article or document.
Published on Aug 08, 2024
