Mutual Funds: The Need to Update the Nominee

Market regulator the Securities and Exchange Board of India (SEBI) has mandated that investors update their nominations to ensure easy transfer of investments in case of the death of an investor. The last day to update the mutual fund investment nominee is December 31, 2023.

SEBI aims to introduce a centralised mechanism for reporting the demise of an investor across investment products while smoothing the transmission process. This will be effective from January 1, 2024. 

At present, there are multiple stakeholders of import when it comes to mutual fund investments. This includes the distributor through whom an individual may be investing, the Asset Management Company (AMC) or fund house in whose mutual funds schemes an investor invests, and the Registrar and Transferring Agent (RTA) who manages the investment-related records for mutual funds schemes. 

In the eventuality of reporting the death of an investor, the family members and nominees are required to inform multiple entities to process the investments of the deceased investor.

SEBI has directed market intermediaries, including mutual fund companies, RTAs, and KYC Registration Agencies (KRAs), to facilitate online and offline modes when it comes to verifying the death certificate. 

The death certificate is mandated to be verified by the next working day, and such requests must be dispatched with the Permanent Account Number (PAN) of the deceased. The option to verify the death certificate online or offline provides dependents with the option to record the investor’s death and lay claim to their investments.

After the verification is undertaken, the intermediary will have to block all debit transactions, such as Systematic Investment Plan (SIP), in the account or folio of the deceased. 

When there are joint accounts, no change will be there, and the other investors can continue with the investment or terminate or redeem them. After a standard operating format becomes effective, it will be a useful structure for investment instruments such as Portfolio Management Services (PMS) and Alternate Investment Funds (AIFs), including stock holdings.

As part of the process, a centralised system will initially block the investment accounts of the deceased investor. This is until the family or nominees submit related documents, and the assets will be withheld for safety. The nominee is a custodian, and the succession process still has to be adhered to.  The move to opt for a centralised system will reduce much of the hassle.