Getting access to a deceased loved one’s mutual funds can be very tedious if the nominee in a mutual fund isn’t mentioned. Near and dear ones will end up spending unnecessary amounts of time and effort to get access to the departed soul’s mutual fund holdings. Assigning a nominee ensures that the control of the mutual fund is handed over to the nominee in the unfortunate event the investor passes away.
A nominee is basically a custodian of a person’s holdings. These holdings can be money, investments, property and so on. All mutual funds have the facility to accept a nominee. In fact, some mutual fund companies have gone one step ahead and made it mandatory to include a nominee.
Many young people do not add a nominee when investing in a mutual fund, while at the same time, people in their 40s & 50s are very particular and add this detail. People think that nominee should be added only if you have dependents.
This is a mistake on the part of the younger folks, especially the ones who are not married yet. Your parents can also be your nominee. This is why several online mutual fund platforms ask for nominee details when users are creating an account.
What happens if a nominee is not added?
In case the nominee is not added, upon the death of an investor, the person claiming the mutual fund will have to prove in the court that he or she is the rightful heir of the mutual fund investment. The person might even need to produce letters from other possible heirs stating that they have no objection to the mutual funds being given to the claimant. Besides, various other important documents will also have to be produced in the court to prove the eligibility to get control of the mutual funds. It is a long and tedious process that may take months to resolve.
Who can be a nominee?
The nominee may or may not be a relative of yours – it is up to you. It can be a friend of yours, a trust, an organization, and so on.
You can even nominate a minor to be a nominee. Though in that case, the guardians of the minor would exercise control over the mutual funds till the nominee turns 18 years old.
You can have multiple nominees for various mutual funds and better yet, you can even choose the percentage received by individual nominees. So if you’d like a certain nominee to receive a greater share than the others, you can specify that too. For example, you could assign 50% of your mutual funds to your spouse and 25% each for two of your children. If no percentage or weightage is specified, all the nominees of a mutual fund will get an equal amount of mutual fund units.
Further, the nominee or nominees can be changed any time you wish to. So in case you need to change the nominee or add a new nominee, you can do so by simply filling a form.
When to add nominee?
Ideally, you should assign a nominee to every fresh investment in mutual funds that you make. But if you haven’t done so, there’s no need to worry. You can easily add a nominee to the existing mutual funds by filling just one form. This form can be found on the mutual fund company’s or AMC’s website. Few online mutual fund platforms also provide support. So, you can add a nominee to an existing mutual fund also.
Remember that if you assign a new nominee in a mutual fund, all the existing nominees are removed. Only the names and weightages mentioned in the latest nomination form are considered.
How does the presence of a Will affect the nominee?
By definition, the nominee is the facilitator or agent who facilitates the mutual fund transfer. If a Will exists that mentions how a mutual fund’s units are to be distributed, then the nominee of a mutual fund has to ensure that the names mentioned in the Will get their due as mentioned.
Choosing a nominee based on their knowledge or understanding of the subject is not a great way to go ahead. Ideally, the nominee should be someone who stands to get the mutual funds after the death of an investor – like an heir.
While planning for one’s demise might seem a little intimidating to some, it is an extremely responsible step to take. Not only does doing so ensure that your family will have easy access to your mutual fund investments should something happen to you, it also makes you lead a more peaceful life knowing you have done your part for your family.
(By Harsh Jain, Co-founder & COO of Groww.in, an online investment platform)