The simple meaning of nomination is – identification of a person who will receive asset/investments in case of death of the unitholder. One must always fill it while applying for MF units or making investments in Mutual Funds. A nomination is also an exercise where one must keep it updated in case of any changes. Let’s see what is nomination, how it benefits & important details.

Nomination & Will are 2 different ways to transfer the benefit to survivors in case of death. Each has its own merit & status in eyes of law. Read further for details.

Nomination in mutual funds is a mandatory field in case an individual is making mutual fund investments. If one does not want to nominate he or she has to specifically make this declaration.

Meaning of Nomination

The main benefit of nomination is easing the process of transmission of units in case of the demise of the investment who has made the investments.

In absence of nomination, the survivors have to provide documents like “legal heir certificate” to validate to whom the units shall be transferred. The reader who knows law a bit, are aware that it takes efforts like, getting NOC from all survivors in favor of the legal heir and many documents of the deceased to get units transferred. Hence having a nominee helps in simplifying the transmission process.

When to Nominate?

The nomination should be done immediately when the investments are made. In case one forgets, or investments are old, one can approach the mutual fund with the nomination form and use his right to nominate.

In case, circumstances have changed and one wants to change, one can do that by canceling the previous nomination and applying with a new set of names.

One can also change the weights of his investments (In percentage), as he is permitted to add up to 3 nominees.

Nomination Process in Mutual Funds in India

There is a separate form or column in the application form.

One has to specify:

• Name of nominee (s) – Max 3
• Age of nominees,
• Relationship with the first holder
• Percentage of benefit – So if one nominee, default is 100%. Means entire investment units will be transferred to the nominee in case of death. If there are more than one – ie 2 or 3 one can choose to divide the benefits in percentage. For example, one may choose to give 50% to the first nominee and 25% each to the remaining two. The total of all the benefits should be equal to 100.
• Address of the nominee – one can write “same as the investor” in case the nominee’s address is same. Otherwise, write the address.
• Appointment of Guardian: in case the age of nominee is less than 18 years one has to mention, the name of the guardian (who will act as trustee till the nominee becomes major) needs to be mentioned with his signature. For eg an investor nominates his 10 years son as nominee with his father (child’s grandfather) as guardian. In case of death of the unitholder, when the age of nominee (son) is less than 18, the units will transfer in name of the son with guardian as signatory. This will be till the minor attains the age of 18. After that, his signature will be taken for operating the investments.

Some points to consider to clear Meaning of Nomination –

• Minor person or Non-individuals (firms, HUF, etc) cannot make nomination.
• Nominee can be any individual, resident or non-resident. (Don’t get filmy and try writing name of your pets etc).
• One can also nominate a minor (with the appointed guardian as mentioned above).
• Investor can nominate a religious or charitable trust or a government body as nominee.
• It is not allowed to nominate a company, partnership, trust (except religious & charitable) or HUF.
• Nomination form should be signed by all applicants even if it is on an “anyone or survivor” basis. Similarily, all subsequent changes must be signed by all unitholders.
• Nomination is for the entire folio. So all schemes present or added later in the folio will have the same nomination until changed.
• In case the distribution is not specified, by default the rule of equal will prevail. Means if folio has 1 nominee, he gets 100%, 2 nominees each get 50% each and 3 nominees each gets 33.33% each.

Legal Technicalities with Nomination

If there are 2 holders in the folio with one nomination. In the event of death of first holder, the units will first go to second holder. The second holder will become first & sole holder and nominee remain same.

In case of demise of both (all) the holder’s nominee can claim the units.

Meaning of Nomination in the eyes of law – Nominee is not the beneficiary or owner of the investments. He/She holds the investments as a trustee for the legal heirs.

Example – Ramesh nominates his friend Sohan, in the folio he holds as sole holder. So in case of death of Ramesh, Sohan will have duties to provide and liaison with MF to claim the units. On transmission, the units will be transferred in the name of Sohan. But family or legal heirs (Kids, Wife or Parents as per Hindu Succession Act) can claim the investment. Sohan has to withdraw and pay to the legal heirs.

So if Ramesh wants Sohan to be beneficiary, he has to make Sohan as beneficiary of this investment in his WILL. In case he dies without a valid will, family has the right to claim all investments.

Rules of Succession

WILL is the most important document. It supersedes all NOMINATIONS. In absence of Will, the claim of the legal heir is greater (superior) compared to nominees.

It is best to nominate the legal heirs to avoid unnecessary confusion & legal troubles. In case this is not possible, one must execute a valid Will.

Rules & meaning of nomination in the eyes of law are different for other assets like property or gold. One must not confuse with others.

Please send your questions on on Meaning of Nomination in Mutual Funds to me through email madhupam at the rate thewealthwisher dot com or use the comments section below.

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