Know about nominations in mutual funds

Here is what you should know about nominations in mutual fund investments ...

http://epaper.gujaratimidday.com//epaperpdf/gmd/30052016/30052016-md-gm-13.pdf

The English translation is as under:

“Do you know that you can have nominees in your mutual fund accounts?” Asked someone. Well, it is something that should be known to all, but some people do not know about this facility.

When you invest in mutual funds, as an individual investor, you can avail the facility to nominate someone. This nominee has the right to receive the investment proceeds in the unfortunate event of the death of all the investors in the respective account. This means, nomination facility can be availed even for accounts in joint names.

The nomination form must be signed by all the holders in case of “joint” or “anyone or survivor” modes. This ensures that all the holders have agreed unanimously to nominate someone.

The process if that the nominees would get the investment proceeds only in case of the death of all the account holders for the account in question.

Now so far we have been mentioning the word “someone” too frequently. Does it mean that there could be only one nominee? Not really, one can nominate upto three nominees in one investment account. The beauty of this facility is that you can even assign percentages to be received by each of the nominees. In case you have not assigned the percentages, it is assumed that all the nominees would get equal amounts.

However, the law does not give the ownership right to the nominees automatically. Nomination is a facility where the nominee has the right to receive the proceeds. These proceeds have then to be distributed among the legal heirs, as per the will of the deceased. In the absence of the will, the proceeds have to be distributed among the legal heirs as per the relevant succession laws. Thus, will is superior to nomination in the account.

Financial planners and advisors recommend that the will and nomination should ideally be the same. This would help distribution of one’s wealth to the legal heirs smoothly.

Few things to keep in mind. Only individual investors are allowed to nominate. So, if you are investing in the name of your proprietorship, the nomination facility is not available. In that case, you got to figure out how the money would be accessed by your legal heirs. It is important to mention about proprietorship since any other corporate entity is a separate legal entity, whereas proprietorship is not different from the proprietor.

Nomination is not allowed if the investment is in the name of minors, too. This was covered in one of our earlier articles.

Nomination is a facility that makes the access to investments easy in case of death of the account holders. Use it. Make sure you have nominations in place, especially whenever you are holding your mutual fund investments in a single name.

-        Amit Trivedi

The author runs Karmayog Knowledge Academy. Recently, Amit has authored a book titled “Riding the Roller Coaster – Lessons from Financial Market Cycles We Repeatedly Forget”. The views expressed are his personal opinions.