Why Nomination in Mutual Funds Is Crucial for Every Investor?

29th May 2024, Gaurav Kumar Singh

Investing in mutual funds is a smart move—but what if something unexpected happens to you? Will your loved ones be able to claim your investments smoothly? This is where mutual fund nomination plays a vital role.

Whether you’re new to mutual funds or a seasoned investor, it’s essential to understand the importance of adding a nominee to your investment. Not only does this ensure seamless transfer of assets, but it also protects your family’s financial interests in your absence.

Let’s explore everything you need to know about mutual fund nominations, recent SEBI guidelines, and how you can easily add or update your nominee.

What Is Nomination in Mutual Funds?

A nomination is a legal facility that allows you to name a person (or persons) who will receive the proceeds of your mutual fund investments in the event of your death.

While nomination doesn’t give the nominee ownership rights during your lifetime, it ensures a smoother transfer of your investments without lengthy legal procedures after your demise.

Previously, nomination was optional for mutual fund folios. But now, SEBI (Securities and Exchange Board of India) has made it mandatory for all new investors to either nominate or explicitly opt out of nomination when opening a mutual fund account.

Why Is Nomination Important?

Ensures Timely Transfer of Assets
Your investments are passed on to your nominee quickly without legal hassles or family disputes.

Avoids Legal Complications
Without a nominee, your family might have to undergo a lengthy court process to claim the funds.

Helps Fulfill Your Financial Intentions
You can distribute your investments according to your wishes, especially if you specify the percentage share among multiple nominees.

Reduces Administrative Burden
It eases the process for the grieving family, especially during an emotionally difficult time.

How Does the Nomination Process Work?

The process of nominating someone in mutual funds is fairly simple:

a) When investing for the first time:

You’ll be asked to fill out the ‘Nomination’ section in your application form. Just provide:

– Full name of the nominee

– Date of birth (if the nominee is a minor)

– Percentage share (if multiple nominees)

– Relationship with the investor

Understanding the Categorisation of Equity Mutual Funds in India: A Beginner’s Guide

b) For existing folios:

You can update or change your nominee(s) by submitting a new nomination form either online or through the Registrar and Transfer Agent or the mutual fund’s investor service center.

Important Note:

You can nominate up to three individuals and mention their share. If you don’t specify, the shares will be distributed equally.

Who Can Be a Nominee?

a) Individuals (adults or minors with a guardian)

b) Anyone acting on behalf of HUFs (Hindu Undivided Families)

c) You can’t nominate:

– Companies

– Firms

– Societies

– Non-individuals (except PoA holders)

When Should You Revise the Nominee?

Life events like marriage, childbirth, divorce, or death of an earlier nominee are good reasons to update your nomination. Any new nomination automatically overrides the existing one.

Understanding Net Asset Value (NAV) in Mutual Funds: A Guide for Smart Investors

SEBI’s Guidelines on Nomination

SEBI now requires all new investors to either nominate someone or opt out. This is a crucial regulatory step to avoid unclaimed investments and protect investor interests.

Existing investors who haven’t nominated anyone must do so by the deadline set by SEBI. If not, their folios may be frozen for debits or redemptions.

Conclusion: Secure Your Family’s Future with Nomination

Nomination might seem like a small step, but it carries huge significance. By taking a few minutes to nominate someone, you protect your family from avoidable stress and legal issues.

Whether you are just starting your investment journey or have been investing for years, check your mutual fund folios and ensure you have nominated the right person(s). It’s a simple yet powerful way to secure your legacy.

If you found this article valuable, please don’t forget to Like and Subscribe to my blog for more expert insights and updates.