SEBI Circular dated June 15, 2022, put up a deadline for existing investors in mutual funds (MF) to provide a choice of nomination on or before March 31, 2023, beyond which, if not complied with, their accounts will be frozen for debits and investors will not be able to redeem their investments, it said. SEBI Circular dated March 29 extended this deadline to September 30 that year. This was again extended to December 31 vide SEBI Circular dated September 27. Didn’t meet the deadline still? Not to worry. SEBI Circular dated December 27 postponed the deadline again to June 30, 2024.

Do we have something to worry here now, since we are past June 30, 2024, too? No again, SEBI Circular dated June 10 clarified that non-submission of ‘choice of nomination’ shall not result in freezing of MF folios. But why is SEBI insisting you provide your choice of nomination. Read on as we try to explain what’s in it for you.

New norms

Asset management companies (AMCs) and Depository Participants (DPs) have been mandated to provide those investing fresh in MFs, effective October 1, 2022, with the choice of either providing nomination or opting out of nomination by signing a declaration form. However, it has been made optional for joint-account holders to comply with this norm.

For existing investors who haven’t complied, post the June 30 deadline, AMCs and DPs are required to follow up by sending e-mails or SMS on a fortnightly basis.

To comply, investors can either fill a physical nomination form with their own signature or use e-Sign facility for online option.

Nominee basics

Nomination enables MF unit-holder(s) to propose a person, who can claim the units, or the redemption proceeds, in the event of death of the unit-holder. In case of a joint MF account, each unit-holder’s approval is required for nomination. A nominee acts as a custodian of the asset in the event of death of the investor. A maximum of three nominees can be appointed. Each nominee can be assigned any percentage of the investment. Changes in nomination can be made at any point in time. Nomination can also be made in favour of the government, local authority, any person designated by virtue of his/her office or a trust. Do note a body corporate, partnership firm, HUF, society or a trust (other than a religious or charitable trust) cannot become a nominee.

In case of a conflict of ownership, the Will shall be considered the final deciding factor. Fund houses may transmit units to the nominee upon the investor’s death, but if the nominee(s) and the legal heir(s) are different and there’s dispute on ownership, the matter has to be resolved in court.

Why it is important

In the absence of a nominee, MF units shall be transferred to the legal heir as mentioned in the Will by the deceased owner. But the whole process could be lengthy, costly and cumbersome. In case a nomination is made, the nominee shall complete the formalities such as KYC process, submission of documents including proof of death, signature of the nominee duly attested and proof of guardianship in case the nominee is a minor.

Claim process

There are three types of claimants — joint MF account holders, nominee(s) or legal heirs. In case of a joint MF account, after the death of the first holder, units shall be transferred to the other surviving holder(s). After the death of all the joint-account holders, units will either be transferred to the nominee(s) or legal heirs if nomination is not made. In case of a single MF account, the units shall be transferred to the nominee, or to the legal heir if there is no nominee. If nomination details are available, then one has to furnish letter from claimant requesting transmission, notarised death certificate copy, Aadhaar card, PAN card etc. Where nomination has not been done, additional documents such as indemnity bond(s) and individual affidavit(s) by legal heir and notarised copy of probated Will, among others, have also to be submitted. The above procedures can vary if the transmission amount is more than ₹2 lakh.

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