Mutual Fund Nomination: All You Need to Know

Investing in mutual funds can be a smart way to achieve your financial goals in India. But life is uncertain, and you may not always be around to continue investing. So, what happens to your hard-earned savings if something unexpected happens to you? 

Mutual fund nomination ensures a smooth and hassle-free transfer of your invested funds to your designated beneficiary in the event of your demise. 

This blog post explains everything you need to know about mutual fund nomination in India, so that your hard-earned money reaches your beneficiary seamlessly.

What is Mutual Fund Nomination?

Let’s start with the basics! 

Mutual fund nomination is the process of appointing one or more individuals to receive your mutual fund units in case of your death. It's a simple yet crucial step that safeguards your loved ones' financial security.

Nominating someone for your mutual funds lets you choose who receives them after you're gone. This nominee will become the new owner of your mutual fund units. This process is called "transmission of units."

And the good news is that anyone can be your nominee!
Whether you're a single investor or share ownership with someone else (joint holder), you can pick a nominee. It can be a family member (spouse, child), someone abroad (NRI), or even a friend. Even minors can be nominees!

Pretty neat, right? But there’s a catch!
While you have a lot of flexibility, some options are off-limits. Businesses, partnerships, and trusts cannot be nominees.

Importance of Mutual Fund Nomination

By now you may have already understood why mutual fund nomination is important. But to make it simpler to understand, let’s take a look at these points:

•    Simplified Transfer: Nomination eliminates the need for lengthy legal procedures like probate. Your nominee can claim the units without any complications.
•    Financial Security for Loved Ones: The funds can be readily available to your dependents during a difficult time, helping them meet their financial needs.
•    Peace of Mind: Knowing your investments are well-accounted for and will reach your intended beneficiaries provides peace of mind.
•    Flexibility: You can nominate multiple beneficiaries, specifying the percentage each will receive.

How to Add and Change a Nominee in a Mutual Fund

Let us now take a look at the process of adding and changing a nominee in a mutual fund:

•    New Investments: Nomination can be done while filling out the application form for a new mutual fund investment.
•    Existing Investments: For existing investments, you can submit a change request form along with your KYC documents to the AMC, like Shriram AMC, or your distributor.

What Should You Remember About Mutual Fund Nomination?

There are a few things you must always keep at the back of your mind about mutual fund nomination. Here they are: 

Ensure Consistency with Your Will

•    Avoid Confusion: Sometimes, people forget they nominated someone for their mutual funds when they first invested. If this nominee differs from the beneficiary in their will, it can cause delays and disputes for your loved ones. To avoid this, it's wise to make your mutual fund nominee the same as your will's beneficiary. Wills typically take precedence over nominations in legal matters.

Choose Your Nominee Wisely

•    Pick Someone You Trust: Mutual funds allow a variety of nominees, but you must choose carefully. Select someone you trust completely to handle your investments.
•    Plan for Minors: If you choose a minor as your nominee, appoint a trustworthy guardian to manage the funds until they reach adulthood.

Accuracy is Key

•    Double-Check Information: When filling out the nomination form, be meticulous. Verify all details like name, date of birth, and share percentage before submitting.
•    Update Regularly: Review and update your nominee throughout life, especially during major events like marriage or divorce. This ensures your intended beneficiary receives your investments.

What Happens If You Do Not Have a Nominee?

While nominating a beneficiary is ideal, sometimes it gets overlooked. Here's what your legal heirs can do:

•    Gather Required Documents: The AMC will request documents like the deceased's death certificate, legal heir's KYC proofs, bank details, and possibly a FATCA declaration. An indemnity bond and a will (if available) might also be needed.
•    Claim the Units: Your legal heir can submit these documents and a request letter to the AMC for unit transmission.
•    No Legal Heir or Will? If no legal heir or will exists, a relative can claim the assets using form T3 (Transmission Request Form) along with additional documents depending on the claim amount (details available from the fund house).

Remember, having a nominee simplifies the process for your loved ones.

Conclusion

Taking a few minutes to nominate a beneficiary for your mutual funds can save your loved ones significant time, money, and stress during a difficult time. By following the tips above, you can ensure your investments are passed on smoothly to those you choose. 

Remember, keeping your nominee consistent with your will and updating your nomination regularly are crucial steps for a secure financial legacy. Make sure your wishes are clear and grant your loved ones peace of mind with a proper nomination.

FAQs

Here are a few frequently asked questions about mutual fund nomination in India:

1.    Is there a cost associated with adding or changing a nominee?
Typically, there are no charges for adding or changing a nominee. However, some AMCs might levy a nominal fee for processing physical request forms.

2.    Can I nominate different beneficiaries for different mutual fund schemes?
Yes, you can have separate nominations for each of your mutual fund investments. You can specify different nominees or varying allocation percentages for each scheme.

3.    What happens to the nomination if my nominee predeceases me?
If your nominated beneficiary passes away before you, your nomination becomes invalid. You'll need to update your nomination details with a new beneficiary.

4.    Do I need to inform my nominee about their nomination?
While not mandatory, it's advisable to inform your nominee about their designation in your mutual fund holdings. This ensures they are aware of their rights and can claim the units smoothly.

5.    What documents do I need to submit for a change in nomination?
The required documents might vary slightly between AMCs. Generally, you'll need a completed nomination change request form, your KYC documents, and a copy of the nominee's ID proof.