All individual mutual fund unit holders in India are required to either nominate a beneficiary or choose to abstain from nomination by September 30, 2023, as mandated by the Securities and Exchange Board of India (SEBI).
Nomination is a procedure allowing a mutual fund investor to appoint an individual to inherit their mutual fund units in the event of their demise. This designated person can be anyone, whether it be a family member, friend, or colleague.
Opting out of nomination signifies that the investor has decided not to name a nominee. In such instances, the investor’s legal heirs will be eligible to receive their mutual fund units in case of their demise.
Should an individual mutual fund unit holder neglect to nominate or opt out of nomination before September 30, 2023, their mutual fund folios will be frozen for any debit transactions. Consequently, they will be unable to redeem their mutual fund units or make modifications to their investment portfolios.
Mutual fund investors can nominate a beneficiary or opt out of nomination by reaching out to their mutual fund management company or registrar and transfer agent (RTA). Alternatively, they may complete these actions online through the mutual fund management company’s or RTA’s website.
In a circular issued on March 28, 2023, SEBI announced, “Based on representations received from the market participants, it has been decided that the provision mentioned at para 4 of SEBI circular dated June 15, 2022, with regard to freezing of folios, shall come into force with effect from September 30, 2023, instead of March 31, 2023.”
In light of this, not designating a nominee could lead to the suspension of your mutual fund account. Approximately 2.5 million PAN card holders have yet to update their nomination information, as indicated by the records maintained by the RTA CAMS.
Eligibility to nominate and be designated as a nominee
As per the Association of Mutual Funds in India (AMFI), “Nomination is a provision that allows an individual to designate a person who can assert the ownership of the units held by the unitholder or receive the redemption proceeds in the unfortunate event of the unitholder’s demise.”
Who is eligible to nominate?
- Any individual holding a Demat account, including non-resident Indians (NRIs)
- A minor is allowed to be a nominee but cannot make nominations themselves.
Who is not eligible to nominate?
- Non-individual entities such as trusts, corporations, and partnership firms
- Individuals acting as power of attorney holders.
You have the option to designate a maximum of three nominees.
Choice to withdraw a nomination
Mutual fund investors who do not want to submit nominations can submit an opt-out declaration to prevent their units from being frozen. This can be done online or by submitting a physical form to the mutual fund company or their distributor.
It is important to note that opting out of nomination can make it more difficult and time-consuming for your legal heirs to claim your mutual fund assets in the event of your death. However, some investors may choose to opt out if they do not have a close relative or friend whom they wish to nominate.
Here are the steps to submit an opt-out declaration for mutual fund units:
- Download the opt-out declaration form from the mutual fund company’s website or from your distributor.
- Fill in the form completely and accurately.
- Sign and date the form.
- Submit the form to the mutual fund company or your distributor.
Once the opt-out declaration is processed, your mutual fund units will no longer be frozen in the event of your death. However, your legal heirs will still need to submit a succession claim to the mutual fund company in order to access the assets.
Nomination in case of joint accounts
In the case of joint ownership of mutual fund units by multiple individuals, it is mandatory for all joint unit holders to collectively select a nominee who would inherit the rights to these units should all the joint unit holders pass away. This implies that if there are two joint unit holders, both of them must reach an agreement on the nominee. Similarly, if there are three joint unit holders, a consensus among all three is required to designate the nominee.
In instances where joint unit holders cannot reach a consensus on a nominee or choose not to nominate anyone, the mutual fund units will be transferred to the legal heirs of the deceased joint unit holders.
It’s essential to understand that the nominee does not become the legal owner of the mutual fund units immediately. Instead, the nominee is granted the authority to receive these units in the event of the demise of all the joint unit holders. To become the legal owner, the nominee will still need to navigate the legal succession process.
To nominate an individual for jointly held mutual fund units, follow these steps:
- Download the nomination form from the mutual fund company’s website or obtain it from your distributor.
- Accurately complete the form in its entirety.
- Ensure that all joint unit holders sign and date the form.
- Submit the completed form to either the mutual fund company or your distributor.
Once the nomination form is processed, the nominated individual will have the authorisation to receive the mutual fund units if all the joint unit holders pass away.
Nomination process: A step-by-step tutorial
You have the option to nominate through both online and offline nomination methods. With the offline approach, you can nominate by physically submitting the nomination form at the Depository Participant (DP) branch.
For the online method, follow these steps:
Step 1: Go to NSDL’s portal.
Step 2: On the homepage, locate and click on the ‘Nominate Online’ option.
Step 3: Provide your DP ID, client ID, PAN, and submit the OTP.
Step 4: Choose either ‘I wish to nominate’ or ‘I do not wish to nominate.’
Step 5: If you select ‘I wish to nominate,’ a new page will open where you can enter the nominee’s Details.
Step 6: On the e-Sign Service Provider’s page, check the box and click on ‘Proceed’.
Step 7: Confirm OTP
Updating nominee details on the CAMS website
Step 1: Access the registration for nominee(s) or opt-out declaration via this link.
Step 2: Choose ‘Add Nominee’. Additionally, you have the option to edit nominee details, including making changes to existing folios with registered nominees or those with no nomination selected.
Alternatively, investors can submit physical Nomination/opt-out forms at the designated Investor Service Centres of CAMs/KFintech/AMCs prior to the deadline.