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Nominee in Investments

Nominee in Investments: Secure Your Legacy

Greetings! If you are thinking of the future where your finances are concerned and want to be sure that your legacy remains protected, you must understand what a nominee does in your investment portfolio.  

This blog seeks to enlighten you about what nominees are, why they matter, and the legalities that should concern you. For instance, when considering how to appoint a nominee, we will discuss how this can facilitate a smooth transfer of your assets instead of making any trouble. It’s just about ensuring that your hard-earned money goes to no other place than the intended hands. 

What is Meant by the Term Nominee? 

A nominee is someone who takes over your investments upon death. They act as trustees, representing you so as to ensure everything changes hands smoothly. In fact, this will save everyone else from going through legal tussles and keep everything simple and free from anxiety. 

Nominee Addition in Financial Accounts in India 

Pre-Independence 

Informally, they existed within family businesses but were not formalized. 

Post Independence (1947–1980s) 

RBI as well as SEBI started formalizing nominee processes concerning savings accounts, fixed deposits (FDs), and mutual fund accounts. 

1990s-2000s 

As the financial industry expanded; institutions created uniform nomination procedures, including forms and steps involved. 

Recent Developments (2010-Present) 

The previous date for nomination or opting out of nomination for mutual fund folios/accounts was December 31, 2023. This has been pushed further to June 30, 2024. Not nominating or opting out of nomination by June 30, 2024, will result in the freezing of your folios/mutual fund account. 

Why is Adding a Nominee so Important? 

To ensure the smooth transition of your assets to your chosen beneficiaries after you die, you must nominate a nominee for your investments. So what’s so important about it? 

  • Avoiding Delay: You make sure that funds are available to your heirs without delay by naming one. 
  • Simplifying the process: The designation of a nominee simplifies the whole asset transfer procedure, reducing paperwork as well as beneficiary and financial institution management. 
  • Reducing Conflicts: The presence of a nominee minimizes wrangles among legal heirs facilitating an easy change of ownership with fewer legal tussles. 
  • Efficient Handling: If there is an appointed nominee, financial institutions will have an easier time managing asset transfers, making operations more efficient and leading to easy receipt and administration of inherited investments by beneficiaries. 
  • Guaranteed Monetary Safety: Naming someone ensures that there are no complications in giving your family and friends access to what you invested for them hence ensuring their financial security in the future. 


Types of Investments and Nominee Provisions 

It is possible for bank account holders and fixed deposit investors to state the people who can possess such assets after their death. Below is a simple explanation of how it operates: 

Bank Accounts and Fixed Deposits 

  • Process: Account holders complete a form given by the bank and indicate information about the nominee in terms of name, connection, and percentage share. 
  • Rights: The nominee acquires the right to lay hands on the assets directly. 
  • Regulation: In India RBI directs banks to maintain proper details of nominees which must include names, addresses and relationships. 


Mutual Funds 

  • Process: Investors may nominate individuals at the time of investment or later. Nomination details are maintained by either fund house or RTA. 
  • Rights: On death of investor, nominee claim mutual fund units which are then processed by fund house/RTA for transfer. 
  • Statistics: During 2020 Indian mutual funds recorded over 1.5 million nominations. 


Mutual Fund Accounts 

  • Process: Demat account holders make nominations with depository participants such as NSDL or CDSL maintaining updated details. 
  • Rights: When the demat account holder dies, depository participant processes securities held in that account claimed by nominee(s). 
  • Statistics: NSDL handled over 1.2 million transmissions in securities during 2022. 

Nominations in Insurance Policies 

Nomination is crucial in insurance policies for life and health in India. Here is how it works: 

  • Process: When a policy holder is purchasing an insurance, they may choose someone as the nominee who will receive the benefits of the policy in case of the death of the policyholder. 
  • Flexibility: Nominees may be made at any time during or after the application period. Spouses, children and parents are usually nominated as immediate family members and are called “beneficial nominees” with legal rights to proceeds under a policy. 
  • Special Cases: Minors can be nominated as well but custodian has to handle that claim until 18 years when nominee matures. 

Importance of Choosing the Right Nominee 

The choice of the right nominee ensures smooth claims process: 

  • Impact: In 2021-22, Indian life insurers settled over 9.2 million claims totaling ₹27,527 crore highlighting the pivotal role played by nominees. (Source: Data from the Insurance Regulatory and Department Authority of India (IRDAI)) 


Nomination in Real Estate

  • In real estate, property owners can nominate individuals to manage their properties after death. 
  • Purpose: This “nominee declaration” assists in avoiding legal disputes among heirs. 
  • Ownership: However, nominees do not hold full ownership rights; inheritance laws still apply. 


Appointing or Changing a Nominee in India: A Step-by-Step Guide 

Bank Accounts & FDs 

Adding a Nominee 

Online Process 

Step 1: Log-in to the Bank’s Website 

  • Go to the bank’s official website. 
  • Log-in using your client ID and MPIN. 

Step 2: Access the Account Section 

  • Click on the “Acount” tab. 
  • Select the “Nominees” option. 

Step 3: Add Nominee 

  • Click on the “Add Nominee” button. 
  • Fill-in the nominee’s details, including name, birth date, PAN card number, relationship, and percentages of shares. 

Step 4: Submit and Verify 

  • Submit the form. 
  • Verify the OTP sent to your registered email ID or phone number. 

Offline Process 

Step 1: Fill Out the Nomination Form 

  • Obtain the nomination form from the bank. 
  • Fill-in the nominee’s details, including name, birth date, PAN card number, relationship, and percentage of shares. 

Step 2: Submit the Form 

  • Submit the completed form to the bank branch. 
  • Ensure the form is signed and dated by the account holder. 


Changin a Nominee 

Online Process 

Step 1: Log-in to the bank’s website 

  • Go to the bank’s official website. 
  • Log in using your client ID and MPIN. 

Step 2: Access the Account Section 

  • Click on the “Account” tab. 
  • Select the “Nominees” option. 

Step 3: Change Nominee 

  • Click on the “Change Nominee” button. 
  • Fill-in the new nominee’s details, including name, birth date, PAN card number, relationship, and percentage of shares. 

Step 4: Submit and Verify 

Submit the OTP sent to your registered email ID or phone number. 

Offline Process 

Step 1: Fill out the Change Nomination Form 

  • Obtain the change nomination form from the bank. 
  • Fill in the new nominee’s details, including name, birth date, PAN card number, relationship, and percentage of shares. 

Step 2: Submit the Form 

  • Submit the completed form to the bank branch. 
  • Ensure the form is signed and dated by the account holder. 
Overall Tips 
  • Minor Nominees- Assign a guardian to receive money on their behalf. 
  • Joint Accounts- Any changes need approval from all account holders. 
  • No Limit- You can change the nominee as many times as you want. 


Direct Mutual Funds 

Adding a nominee 

Online Process 
  1. Visit the mutual fund site where you have your investment. 
  1. Enter your User ID and Password to log-in. 
  1. Look for the “Nomination”/ “Nominee” section. 
  1. Enter the nominee’s details, like name, PAN, and relationship accurately. 
  1. Double-check and confirm all the details to ensure they are filled correctly. 
Offline Method 
  1. Grab the nomination form from the registrar and transfer agent (RTA) or the mutual fund website. 
  1. Fill out the form: Enter nominee’s name, PAN, relationship and other required info. 
  1. Send the completed form to the mutual fund house or RTA. 
  1. Ensure the mutual fund house or RTA updates and confirms the nominee details correctly & properly. 
Extra Advice 
  • Prepare Paperwork: Have the nominee’s PAN and proof of identity ready. 
  • Regularly check and update your nomination details to keep them accurate. 
  • Make sure the nominee understands their role and responsibilities if you’re replacing an existing one. 
  • Maintain a record of your nomination details for future reference. 
  • Visit the Association of Mutual Funds in India (AMFI) website for more details. 

Regular Mutual Fund Process 

How to Update the Currently Existing Account with a nominee? 

1. Navigate to “My Account” portal.  

If an “Online Nomination” pop-up appears, click “Proceed to Submit”. If not, go to “Manage Account” and select “Add Nominee.”

2. Nomination Selection 

To add a nominee, select “I wish to nominate” to proceed with adding them. 

3. Nominee Selection 

Enter the necessary information and identification proof for each of up to 3 nominees. Afterwards, click “Submit”. 

4. Grant Permission

After submitting, a Digio e-sign pop-up will open in a new window. If the pop-up doesn’t appear, you can enable it by selecting “Always allow” and then clicking “Done.”

5. E-sign with Digio 

When the Digio e-sign window appears, select “Proceed to esign” and complete the process using your Aadhaar and OTP. 

6. Completion 

The nominee details will be updated within a week. For further assistance contact the mutual fund company. 

Insurance Policies 

Online Process 

  1. Log in: Access your insurance company’s online portal and find the “Add/Change Nominee” section. 
  1. Fill Form: Complete the nomination form with the new nominee’s details, such as name, relationship, and contact information. 
  1. Upload Documents: Provide necessary documents like ID proof or relationship proof online. 
  1. Pay Fee: If applicable, pay the charges securely online. (Usually adding or changing nominees is free of cost). 
  1. Submit: Finalize your request and await confirmation of the nominee change. 

Offline Process 

  1. Get Form: Obtain the nomination change form (e.g., Form 3750 from LIC policies) from your insurer’s branch or agent. 
  1. Complete Form: Fill-in the new nominee’s details and attach supporting documents, such as proof of relationship.  
  1. Submit: Visit your insurer’s branch to submit the completed form and documents. 
  1. Pay Fee: Pay any applicable change fee in-person. 
  1. Receive Confirmation: Obtain a written acknowledgement from the insurer confirming the addition/change of nominee. 

Key Points 

  • There’s typically no limit on how often you can change the nominee. 
  • For minor nominees, appoint an adult guardian of over 18+ years of age. 
  • Keep nominee details updated regularly, including name, mobile number, and address. 


Real Estate 

Online Process 

Adding a Nominee 
  • Access the relevant authority’s online portal. 
  • Fill-out and submit nomination form online. 
  • Provide nominee details like name, relationship, and contact information. 
  • Receive confirmation online. 
  • Nominees remain custodians without ownership rights. 
Change a Nominee 
  • Log-into the online portal of the relevant authority. 
  • Submit a new nomination online to replace the previous nominee. 
  • Flexibility in making changes but ensure alignment with legal requirements. 
  • Potential for disputes if changes conflict with the owner’s will or legal heir’s rights. 


Offline Process 

Adding a Nominee 
  • Obtain a nomination form from the society, bank, or relative authority’s branch. 
  • Fill-out form manually with nominee details. 
  • Submit the completion form, along with necessary documents (relationship proof, ID proof) at the branch. 
  • Obtain a written acknowledgement from the authority. 
  • Nominee’s role as a custodian is legally recognized. 
Changing a Nominee 
  • Visit the branch of the relevant authority. 
  • Obtain a new nomination form. 
  • Complete the form manually to replace the previous nominee. 
  • Submit the updated form and required documents in-person. 
  • Ensure compliance with legal requirements to prevent disputes. 
Legal Considerations 
  • Nominees hold property in trust for legal heirs, without acquiring ownership rights. 
  • Potential conflicts between nominees and legal heirs may arise, especially concerning property and inheritance rights, so keep a plan ready for that. 
  • Additional documentation, like succession certificates, may be necessary for property transfer to the nominee. 


Legal Rights of Nominees in India 

Nomination vs. Succession 

“Nomination” allows for the transfer of assets upon the owner’s death, while “Succession” refers to transferring property to legal heirs. Nominees are custodians of assets until they are transferred to the legal heirs. In a 2019 Supreme Court case, it was clarified that being a nominee for shares or securities does not automatically grant inheritance rights. 

Role of Nominees: Two Major Roles 

  • Nominees help with asset transfer after the owner’s death, but they don’t inherit the property. 
  • They temporarily hold assets until legal heirs are sorted out and ownership is transferred. 


Nomination in Cooperative Societies 

  • Under the Co-operative Societies Act, 1982, if no legal heir is named, societies transfer a deceased member’s share or interest to the nominee(s). 
  • Cooperative societies must transfer a deceased member’s share to the nominee(s) when no legal heir is designated. However, nominees represent legal heirs and donot possess exclusive rights to the property. In case of Smt. Kamlabai vs. Smt. Rukmini, the Supreme court affirmed that a nominee’s interest is limited to the deceased member’s share or interest. 
  • Example: Ramdas Sivram Sattur vs. Rameshchandra and Others (2009)- The Bombay High Court stated that nominees act on behalf of legal heirs but don’t own the property. 


Procedure for Resolving Disputes Between Nominees and Legal Heirs 

1. Filing a Case 

Initiate Legal Proceedings: The party that feels wronged (usually the legal heir) files a case in civil court. 

Document Submission: Provide necessary documents like the death certificate, nomination form, Will, and other relevant legal documents. 

2. Court Hearings 

Preliminary Hearing: The court hears the initial arguments from both the parties, and reviews the submitted documents. 

Evidence Presentation: Both parties present evidence supporting their claims. This can include testimonies, written statements, and additional documentation. 

3. Legal Evaluation 

Examination of Laws: The court examines relevant laws, such as the Indian Succession Act, 1925 (Note: The process of succession can be affected due to religious obligations as well, like, the Hindu Succession (Amendment) Act, 2023); along with some special rulings like Section 109A of the Companies Act, 2013. 

Interpretation of Will: If a will exists, the court interprets its validity and the intentions of the deceased. To be noted: a will won’t be considered if the property happens to be ancestral, like farmlands. In that case the property will be distributed as per the standard procedures. 

4. Judgement 

Court Ruling: The court delivers its judgement, determining whether the nominee or the legal heirs have the rightful claim to the assets. 

Asset Distribution: Based on the judgement, the assets are either transferred to the nominee or distributed among the legal heirs. 

Aspect Nominee Beneficiary 
Role Temporary caretaker Permanent Owner 
Ownership Does not own the assets Owns the assets 
Purpose Manages and transfers assets. Inherits and keeps the assets. 
Legal Standing Acts according to the laws, bounding to transfer assets to legal heirs. Has full legal rights to the assets. 
Example Friend named as a nominee for a bank account; manages money but must pass it to the legal heirs. Spouse named in a will to inherit a house; directly owns the house. 
This table clearly shows the differences between a nominee and a beneficiary in simple terms. 


Bottom Line 

Alrighty fam, let’s wrap this up! 

Securing your legacy with nominee power is a game-changer. By nominating someone, you’re making sure your  hard-earned money and assets go straight to the people you want without all the legal drama. From bank accounts and mutual funds to real estate and insurance, understanding how to add or changing a nominee is crucial. 

Remember, it’s not just about picking anyone; choose wisely to avoid any future conflicts. Keep your nominee details updated and always have a backup plan to keep things smooth for your loved ones. 

Peace of mind for you, and security for them–now that’s a win-win! 

Stay smart, stay prepared, and make sure your legacy is exactly how you want it.  

Catch you later 😉 

FAQs

How can a will secure your legacy and your family’s inheritance? 

Creating a will is like having a cheat code for making sure your assets go exactly where you want after you’re gone. Here’s how it works: 

Naming Beneficiaries: You get to decide who get’s what–be it your family, friends, or even your favorite charity. 

Handling Taxes: Use trusts and other tools to keep taxes low and make sure your estate transfer is smooth and efficient. 

Protecting Your Stuff: Set up trusts to safeguard your assets from things like bankrupcy, divorce, or disability. 

Keeping Control: Leave clear instructions on how your assets should be managed and distributed, so your wishes are honoured. 

Skipping Probate: Trusts can help you avoid the lengthy and expensive probate process. 

Who will get money if nominee dies? 

If the nominee kicks the bucket, the assets in the mutual fund account usually goes to the next listed beneficiary. If there isn’t one, the nominee’s legal heirs, like their spouses or kids, typically get the assets. 

Who Cannot be a nominee? 

You can’t nominate minors, companies or trusts, someone who’s deceased, or someone who’s legally not all there. If you hold assets jointly, no nominee is needed–the surviving joint holder gets it all. Stick to these rules and make sure your nominations are legit and good to go. 

Are shares safe in a nominee account? 

Yep, shares in a nominee account are pretty safe. They’re held under the nominee’s name, who manages and distributes them as per your wishes, adding an extra layer of protection to make sure everything goes as planned. 

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