Why Nomination is Important in Mutual Fund Investing

Life is very unpredictable. It is important for a person to nominate one of their family members while investing in a mutual fund. In case of the sudden demise of the unitholder, the nomination facility helps in transferring the mutual fund units to the nominee.

Let’s understand the importance of nomination in mutual fund investing in detail: 

1. What is nomination in terms of mutual fund investing? 

The process of appointing an individual to care for the assets in case of demise of the investor is called Nomination. The nominee can be an investor’s family member— spouse, child, or other trusted person. New folios/accounts opened by single holding individuals are now required to have the facility for nomination. In case of joint holdings, where mutual funds units are held by more than one holder, a nomination is not mandatory. However, it is always advised for the new folios to have a nominee. 

2. What if an investor doesn’t wish to appoint a nominee? 

The choice of having a nominee depends on the investor. In case the investor doesn’t wish to appoint anyone, all he needs to do is sign on the requisite space in the form while investing and indicate the same. 

3. What is the process of making a nomination? 

An investor can make a nomination by filling the details of the nominee in the prescribed column of the form. However, if an investor is a non-individual like a society, trust, corporate bodies, Karta of a HUF and power of attorney holder, they cannot opt for nomination. The nomination is even allowed for joint holders, however, the surviving holders become the beneficiary in the event of the death of one holder. The nominee will become the beneficiary only if all the joint holders are deceased.

Also Read: CBDT Clarifies the TDS Applicability on Mutual Fund Dividend

4. Is there an upper limit to the number of nominees that can be appointed? 

A mutual fund folio can have a maximum of three nominees. The percentage of the amount that will go to each nominee is specified, in case of the unit holder’s demise. If the percentage is not specified, the nominees are eligible for an equal share of the amount. 

5. Can an investor change his nominee once registered? 

Yes, an investor can modify his registered nominee at any time. 

6. What is the benefit of appointing a nominee for mutual fund investments? 

The biggest benefit of making a nomination is that it helps in a smooth transfer of the amount to the nominees in case of the demise of the investor. If no nominee is appointed, it will difficult for the claim to get processed since any person claiming the amount will have to produce documents like a will, legal heir certificate, no-objection certificate and get the units transferred in his name.

For any clarifications/feedback on the topic, please contact the writer at komal.chawla@cleartax.in