Is it mandatory for a nominee to sell the mutual fund units?

The nominee of a mutual fund investment often hunts for advice regarding the redemption or the continuation of their investments in the same scheme after the demise of the actual investor. The compulsion regarding selling units of mutual funds remains a topic of uncertainty.

nominee of a mutual fund

In today's unsteady and fluctuating market, people might have invested in different areas like stocks, real estate, insurance plans, gold, provident funds, and mutual funds. Planning for the future and ensuring a good life for one’s family has become a must. It is a rather good way to do so by making extensive investments in mutual funds alone. To know more about the investment ideas in mutual funds, visit 6 Reasons why you should invest in Mutual Funds | Tomorrowmakers

But do the thoughts of mishappenings ever cross your mind? Who would get the money you have saved and invested over the years? 

The answer to these questions would simply be a nominee’ that you have registered to your mutual funds would receive your assets. A nominee is a person who will receive the units of a mutual fund if the actual unitholder dies. Let us first understand how nomination works in mutual funds, the allowances and prohibitions, and everything we need to know about Nomination in Mutual Funds!

What is Nomination in Mutual Funds?

Nomination is a provision that permits the unitholder of a mutual fund to nominate a person who will be able to assert their ownership of the units of the mutual fund in case of the demise of the unitholder. 

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The process of Nomination in mutual funds?

Nomination is done during the purchasing of units with the initial application. If not, it can also be done subsequently after the purchase of the units. The applicant is required to fill in the ‘nomination’ section in the application form at the time of making investments in mutual funds. When the nomination is made after the purchase, the owner of the units will need to fill out a nomination form. It is not a permanent decision, meaning mutual funds allow to change of the nominee at any time and numerous times.

Coming to the essential part of the nomination, we will now discuss the necessity of specifying a nominee. People often ask whether it is mandatory for a unitholder to register a nominee. The Security and Exchange Board of India (SEBI) has issued a circular, implying that nominee specification will only be an option. Earlier, it was compulsory to provide at least one nominee of the units of mutual funds. But recently, on the 15th of July, a significant change was observed, which allows the investors to keep their investment units without a nominee. Opting out of nomination is also an option for mutual fund investors. The choice is to be signed on a declaration form. 

What happens after the transfer of mutual fund units?

In the case of bank deposits and insurance, funds are directly transferred to the registered nominee's bank account if an adverse situation occurs, like the demise of the unitholder occurs. 

But mutual funds have a different way of functioning. Net Asset Value (NAV) is the value of the securities of a mutual fund scheme denoted. The money that is invested in mutual funds is held mainly as units on the basis of NAV. Upon the investor's death, these units get transferred to the nominated person of the scheme. 

Once this transfer has happened, it is solely the preference of the nominee that those units that he/she has received are to be continued as the investor or be redeemed. THERE ARE NO OBLIGATIONS TO SELL OR TO CARRY ON WITH THE INVESTMENT. 

If in case the nominee wants to continue investing in the mutual funds that they've gained access to, then there are different rules available to be applied during the lag period between the demise of the scheme holder. This will make sure that the returns are high during this phase. 

The transmission of the units of mutual funds attracts no tax. The nominee, however, is not permitted to redeem the transferred amount until the first fifteen days of the transfer. After these 15 days, the gain on the mutual fund units will become taxable. 

Disclaimer: This blog is just for educational purposes and should not be considered a piece of expert advice. All finance schemes are subject to market risks; hence, investments should be made at your own risk.


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