Why should you add a nominee in mutual fund investments? MintGenie explains

The Securities and Exchange Board of India (SEBI) recently issued a circular on June 10, providing clarification on the nomination requirements for demat and mutual fund accounts. Here’s what it entails:

• Continued access for existing investors: SEBI assures that existing demat accounts and mutual fund folios will not be frozen due to a lack of nomination on file. This policy remains in effect even if a “choice of nomination” hasn’t been submitted.
• Uninterrupted benefits and services: Investors can still enjoy dividends, interest payouts, redemption proceeds, and access to registrar services without a nomination in place.
• Significance of nomination: Although not compulsory for existing accounts, having a nomination ensures that your investments are transferred to your chosen beneficiary in the event of your demise.

Existing account holders, defined as those who established demat accounts or mutual fund folios before June 30, 2024, will not encounter freezing of their accounts due to a lack of nomination. Conversely, all new investors initiating demat accounts or mutual fund folios (post June 30, 2024) will need to designate a nominee, facilitating a smoother inheritance process in the event of the investor’s demise. However, jointly held demat accounts and mutual funds are exempt from this nomination requirement.

Also Read: How to ensure phased payouts to your nominee in the case of death

Although nomination remains optional for existing accounts, it is strongly recommended. Having a nominee designated helps mitigate potential delays and complications in transferring your holdings to your chosen beneficiaries upon your passing.

Mutual fund nomination

For those unfamiliar, a mutual fund nomination involves assigning an individual to inherit the units of a mutual fund upon the investor’s passing. It’s possible to designate more than one nominee for a mutual fund, with a maximum of three nominees allowed per folio.

In cases of multiple nominees, it’s crucial to specify the percentage share each nominee will receive from your mutual fund units. This prevents confusion and guarantees an equitable distribution as per your preferences. Additionally, nominations aren’t set in stone; you can revise them as needed if your circumstances change, such as marriage, the birth of a child, or a desire to alter beneficiaries.

The problem is that many investors neglect to designate a nominee for their mutual funds, whether during the initial investment or later. Here’s why it holds such significance:

• Seamless transition: By appointing a nominee, your mutual fund holdings can smoothly transfer directly to your chosen beneficiary upon your demise. This bypasses potential delays and complications compared to the legal probate process.
• Reduced complexity: The absence of a nominee may necessitate heirs to undergo a lengthy legal procedure to claim the investments, involving documentation such as wills and legal heir certificates.
• Peace of mind: Knowing that your investments are safeguarded offers peace of mind. You can rest assured that your assets will reach your intended beneficiaries without undue complications.

Foregoing a nominee for your mutual fund investments can lead to complications later on. Here are the potential consequences of not designating a nominee for your mutual fund investments:

• Delayed access for heirs: The absence of a nominee means your assets won’t be readily accessible to your heirs. They’ll have to navigate a legal process to claim ownership, which can be time-consuming. This delay could create financial difficulties for your dependents who rely on those funds.
• Legal complexities: Without a nominee, your investments may be subject to inheritance laws, potentially sparking disputes among heirs, especially in the absence of a clear will outlining your wishes. Resolving such disputes can be both stressful and costly.
• Probate process: Lack of a nominee could lead your heirs to undergo the probate court process to access your mutual fund holdings. Probate is often intricate and protracted, involving documentation like wills and legal heir certificates.
• Unintended distribution: In the absence of a nominee, your mutual fund investments might not be distributed according to your preferences. If there’s no clear will or if the will is contested, the court will decide on asset distribution, which may not align with your intentions.

How can you add a nominee to your mutual funds online?

Including a nominee in your mutual funds online is typically straightforward, although specific steps may vary depending on your asset management company. Here’s a general outline to follow:

• Use the investor portal offered by your AMC: To manage mutual fund portfolios, the majority of asset management companies (AMCs) offer an online investor portal. Look for the investor portal login option when you visit your AMC’s website. To continue, you’ll typically need your login credentials and folio number.
• Locate the section for nominations: Proceed to the investor services or account administration section after logging in. Seek out options labelled “Nomination” or “Nominee updation.”
• Give the nominee’s details: Complete the required fields, which typically include the nominee’s full name, date of birth, and relationship to you (spouse or child). Certain portals might also ask for the nominee’s contact details.
• Share percentage (Optional): In case you have multiple nominees, you have the option to designate the percentage of your mutual fund units that will go to each nominee. This offers a fair and transparent distribution according to your preferences.
• Verify and submit: After completing the necessary forms, you will probably need to use the one-time password that was sent to your registered email address or mobile number to verify the information. Send in your nomination request after you’ve been verified.

You can also update nomination details in mutual funds via MFCentral. The bottom of Form Two of the top registrar and transfer agents (RTAs) in India, CAMS and KFintech, created the centralised platform known as MFCentral. If these RTAs are handling any of your mutual funds, follow the instructions below to choose an MF nominee:

Step 1: Visit the MFCentral website and create an account by providing your email address, mobile number, or PAN.

Step 2: Enter your login information to access your newly created account.

Step 3: Find and choose “Submit Service Requests” from the dashboard.

Step 4: Select “Update Nominee Details” in step four.

Step 5: Decide which folios you wish to have the MF nominee updated for.

Step 6: Fill out the nomination form completely and send it in.

Also Read: Demat account nomination: How to update nominee details? A step-by-step guide

How can you designate a nominee for mutual funds offline?

If you prefer not to update your mutual fund nomination online, you have the option to do it offline. Simply complete the nomination form and submit it along with any required supporting documents to the respective AMC handling your mutual fund. Here are the steps to add a nominee to your mutual funds offline:

Get the nomination form

You can typically download the nomination form directly from the AMC’s website. Look for the section related to investor services or downloads. The form may be titled “Nomination form” or “Change of Nomination form”. Alternatively, you can visit a branch office of your AMC and request a physical nomination form. They are usually readily available for applicants.

Also Read: Hold a joint mutual fund account? Sebi makes the nomination process voluntary. Details here

Complete the form

Thoroughly fill out the form, including your folio number, investor name, and all other pertinent details as indicated. Input your nominee’s complete name, address, relationship to you (such as spouse or child), and their dates of birth. In the case of multiple nominees, indicate the percentage share each nominee will inherit from your holdings.

Signatures and documentation

Sign the form in the specified section. Although not always obligatory, certain AMCs may mandate your nominee’s signature on the form as well. Refer to the form’s instructions for clarity.

Attach a photocopy of your PAN card and a photocopy of your nominee’s PAN card. Certain AMCs may also necessitate a copy of your nominee’s ID proof (such as your passport or voter ID) or a cancelled cheque containing their bank account particulars.

Send in the application

Bring the completed form to an AMC branch office along with the necessary paperwork. Give them to a customer support agent, who will check the details and handle your nomination request.

If it’s not feasible for you to visit a branch, you can mail the completed form and supporting documentation to the AMC’s registered office address. You can find this address on the AMC website or in any correspondence you may have received from them.

Ensuring accuracy and completeness in all sections of the form, including your personal information, nominee information, and percentage shares (if applicable), is crucial, regardless of whether you provide your nominee(s) information online or offline. Give the AMC some processing time to update your nomination details; the exact time will vary based on AMC policies. Following processing, the AMC may send you a letter or email confirming your request.

Even though adding a nomination offline might require a bit more work than doing so online, the procedure is still straightforward. It will be simpler for your loved ones to inherit your mutual fund holdings if you take these steps.