Nominations – What it is, Whom to Make a Nominee & Everything An Investor Need to Know About Making a Nominee In Mutual Funds, Bank Accounts & Other Investments
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What is a Nomination?
The nomination is a facility that enables individuals to nominate a person as a nominee, who can claim the underlying asset in case of their death.
The underlying assets can be
- Units of mutual funds
- Cash for bank accounts
- Shares for the brokerage account
If any of the above is held jointly by more than one person, and if one of them dies, the other joint holder becomes the sole owner of the underlying assets.
In case of a death of the nominee, the nomination automatically gets canceled and the investor has to choose a new nominee.
Note: This article is for the information purpose and encourages my blog reader to add a nominee in their mutual funds, bank accounts, and other investment. It shouldn’t be taken as legal advice. Please consult the lawyer if you have a doubt or need to know about any specific situation.
Who Can Nominate?
Any investor, trader or a bank account holder can nominate another person to be his or her nominee.
Who Can be the Nominee?
Any individual can become a nominee. Even a minor or an NRI can be a nominee.
Can There be More than One Nominee?
Yes, there can be more than one nominee.
The number of nominees can vary from one bank account to another.
So for one bank account, one can have a single nominee, and for another account in the same bank, one can have multiple nominees.
The crucial part is to have a nominee.
Can I Change the Nominee?
Yes, any time. One may wish to change the nominee; one needs to submit a duly filled form.
One can remove someone from being a nominee as well as add a new nominee to the existing nominees.
It is simple, and every bank, broker or mutual fund house has a process to update the nominees.
What is a Legal Heir?
A legal heir is a person entitled by law or religion to acquire all the assets in case of the death of the other.
The legal heir can be son, daughter, wife in case of death of a husband or as per the will. It can vary from case to case basis, and I won’t get into the details.
In the case of multiple legal heirs, the distribution of wealth is as per the will. If there is no will, the succession law of the religions is followed to distribute the wealth among the heirs.
Difference Between Nominee and Legal Heir?
For mutual funds, bank accounts, and other investments: Nominee is the person who will act to transfer the assets to the legal heirs.
In case of insurance, the nominee is the beneficiary which means the nominee becomes the owner of the amount. Similarly, it can and may vary from case to case and asset to asset basis.
So from mutual funds, bank accounts, and other investments perspective, the nominee doesn’t become the owner of the asset. He or she is only the caretaker and is responsible for transferring the assets to the heirs.
Generally, people make legal heirs the nominee.
The Misconception About Nomination / Nominee
One of the myths among Indians about the nomination is – they assume it is a process which makes the nominee the rightful owner of the assets.
It’s not true.
The nominee is only the caretaker of the assets. He or she will is responsible for distributing the assets to the legal heir.
The misconception mainly arises because we see the same in movies where in cases of insurance, a nominee who is also the beneficiary becomes the owner of the assets as well.
In case of mutual funds, bank accounts as well as equity investments, the nominee is only the caretaker of the assets.
Whom Shall I Nominate?
Typically in India, we want to give all our wealth to our kids. For a husband, the wife is the best person to be doing so and vice versa.
So, in an ideal scenario, husband’s should nominate their wife as nominee and vice versa.
In case you are a single parent, and your kids are minor, use the option wisely so after you, your wealth is well managed and transferred to your kids.
If you have slightest of the doubt on a person, he or she should not make them the nominee.
Who Can’t be a Nominee?
Any company or partnership firms can’t be a nominee.
I will re-iterate because the nomination is a process of letting the asset be passed over to the legal heirs by a nominee. So only individuals can become nominees.
Why Must One Always Nominate?
If there is no nomination, the legal heir has to prove before he will be allocated all the assets from the bank, broker, or the mutual fund house.
But if someone is a nominee, the amount can be transferred to them instantly without much of paperwork.
It is a crucial aspect because there is nothing that can repair the loss of the person but one can reduce their paperwork at least.
So every one of us should nominate.
I will request you to stop reading this article right here. Check all your bank accounts, mutual fund investments as well as brokerage accounts to see if you have added a nominee?
If not, do it at the earliest.
How to Nominate?
Finally, the question is, how one can nominate the person.
The process is simple. One has to fill a form and submit at a branch or courier it at a designated address.
An email I got from ShareKhan that states the steps for adding a nominee to my account.
- Download the Nomination form from the website or collect it from nearest Sharekhan branch.
- Fill the form, which requires signatures of the account holders, nominee and two witnesses
- Submit the duly filled form along with a photograph of the nominee at any of our nearest branch.
The process has to be same for all brokers, mutual fund houses as well as the banks.
I know the question may come why can’t I add a nominee online?
Instead, consider a simple one-page form. If you take the pain to submit it now, it can save your loved ones lot of pain to prove they are your legal heirs.
Let Nominee Know About Investments
Finally, the most important part is, let your better half know about all the investments. Otherwise, it may so happen they may never know about the investment.
As an example, an investor invested in a direct fund directly through the AMC a lump-sum amount. Added her wife as a nominee. As it happens often, she signed the form without asking exact details. Husband didn’t actively discuss it either. After his death, the wife will never know about the investment in the fund.
The amount will remain invested and keep growing as well, but the family has a little chance of making it to the money.
Always add a nominee and make sure to maintain a Google Sheet for the list of places where you have added a nominee. It will help in more than one way. Also in case you want to change it in the future, you will not miss any.