Did you add a nominee in your mutual fund account? It’s easy, and here’s why you should

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Mutual funds

All of us have dreams and aspirations in life, and to fulfill them, many of us decide to put our hard-earned money in mutual funds. Perhaps, you made investments to support the aspirations of those you love – both during your life and in your absence.

Life can be full of surprises, and no one likes to think about what would happen to your investments, be it mutual funds, stocks, or bank fixed deposits in case of your untimely demise. But it’s important to take this into consideration and add a nominee to your account, as this simple but important step helps protect your investments by ensuring they go to the person you intend.

You may be surprised to know that, as of FY 2023, there are more than Rs 2,600 crore worth of unclaimed dividends and units lying with mutual fund houses! The Association of Mutual Funds in India (AMFI) data also reveals this unclaimed amount was around Rs.2,500 crore in FY 2022.

These unclaimed amounts have accumulated over the years as many families don’t know or have lost track of the investments made by a parent, spouse, or any other family member. So, adding a nominee to the mutual fund unit serves as a simple and inexpensive way to ensure your loved ones can quickly claim the money in the mutual fund folio with minimal paperwork after the unit holder’s death.

However, one must understand that the nominee(s) only acts as an agent and trustee for the legal heirs and is neither the person’s heir nor the legal beneficiary. So, it is recommended that you keep the beneficiary of your Will the same as the nominee of your mutual fund because a Will is upheld over a nomination in most legal cases. Furthermore, in the absence of a Will specifying that the nominee is also the sole heir, other legal heirs can make claims to the assets.

Is Nomination mandatory for Mutual Funds?

The Securities and Exchange Board of India (SEBI) has made it mandatory for mutual fund investors to add a nominee/s or explicitly opt out of nomination for all existing folios, even those held jointly. Regulatory guidelines mandate that new investors must, with effect from 1 October 2022, appoint a nominee for all their mutual fund folios or inform the respective fund house they wish to opt out of the nomination.

Existing investors also need to assign a nominee or opt-out nominee in their older investments by 30 June 2024. If investors fail to comply, their folios will be frozen for debit, and they will not be able to redeem your investments. This is applicable irrespective of whether the investment is held individually or jointly.

How to add nominee(s) to your mutual funds?

You can add/modify a single nominee in the demat account or single/multiple nominees in your demat account using Two-factor authentication (2FA) completely online through MyGeojit. You need to fill in the nominee details like name and address along with the percentage of ownership each nominee will get. If you don’t specify any percentage, each nominee will be eligible for an equal percentage. You will receive an OTP in your registered email ID/mobile number as part of the two-factor authentication to verify the nominee updation request.

You have to download the Nomination Form, fill in the details, and submit the form at your Geojit branch if you are holding a joint demat account or do not want to complete the process online. 

Remember, if you choose to opt out of nomination, your legal heir(s) can claim the investment only after proving their legal heirship. However, this can be a long-run process. Therefore, it is advisable to add nominee/s in your mutual fund investments to facilitate the seamless transfer of assets in case of an unfortunate event.

Facts about nomination:

  • You can add up to three nominees. You should clearly indicate the percentage of ownership for each nominee against their names. If you do not specify the percentage of ownership, the AMC will divide the claim equally amongst all the nominees.
  • You can change the nominee(s) in your folio/ account as per evolving financial obligations and personal circumstances. You can also simply remove existing nominees or add new nominee(s) using the mutual fund nominee change form. The fresh nomination request will automatically overwrite the existing nomination.
  • For Demat accounts, minors are permitted to be nominees. The minor’s guardian’s name and address must be provided while making the nomination.
  • You cannot make nominations if you are holding Power of attorney (POA ) or you are a guardian investing on behalf of a minor.
  • A trust (other than a religious or charitable trust), society, company/body corporate, partnership firm, Hindu Undivided Family (HUF), etc. cannot be the nominee.

You can spare your family the trouble of having to prove their legal heirship to claim your investments in case of an unfortunate event by updating your investment accounts with Nominee details.

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