Nomination

Life is uncertain. We realize this more now in Covid-19 times. At this juncture is it necessary for nomination in investments? Proper nomination documentation will help your nominee to get the proceeds smoothly without any hitches.

If you wish to change your nomination or have not done it in the past, then this is the right time. Start doing it from today. Whatever be the investment, (stocks, bonds, or banking products), wherever there is provision for nomination, it is better to do it. Let us look about nomination in mutual funds in some detail.

 Nomination in Mutual Funds

Investors can add/update their nominations in their fund account at any time. This can be modified as many times as they wish. So even when the nominee is alive, they can transfer it to someone else. For example, if a spouse is initially nominated, this can later be changed to their children.

For fresh registration or change of nomination, the form should be obtained from the Mutual Fund House and the duly filled form with signature of all fund holders must be submitted back to the mutual fund house. Usually within two to three weeks the investor should be getting the registration confirmation. Or investor can give the completed form to RTA’s like Cams or K Fin Tech (Old Karvy).

 Information to know before registration of nomination:

1.      Registration can be done anytime

2.      Can be changed as many numbers of times.

3.      Nominee can be one to three people

4.    When more than one nominee, 100% can be divided and suitably distributed to them. It may be more for one person and less for the other. For example, 50% for spouse, 25% for daughter, 25% for son. Some other example split:

a.      34%, 33%, 33%

b.      50%, 50%

c.      75%, 25%

5.      Minor children can also be nominated. Minor nominee would require their birth certificate to be enclosed along with their guardian's name. It is better not to have the guardian also as another investor in that fund. When receiving the proceeds, if the nominee child’s age is above 18, using their own pan card they can complete their KYC. Once this is done, they can get the proceeds to their own bank account and the guardian would play no role.

6.      For nominees, KYC is not required during the registration. KYC is required when receiving the money.

7.      It is not necessary to have the same nominee pattern across all our investments. For example, in ICICI mutual funds the nominee could be spouse and in IDFC mutual funds the nominee could be the daughter.

 Nomination Is Different from Will

Nomination means the money easily goes to the nominees. In the case of disputes between legal heirs about ownership of the money, the nominee cannot argue that it is their absolute right to own the money. Legal heirs can approach the court to get their dues out of these proceeds.

If the will is written and registered, it has more legal power than a nomination. The proceeds will be paid to the person named in the will and all other legal heirs have no claim.

 Finally,

It is first better to decide the % distribution and nominee names first and correspondingly update the nominations.

 NB

 Click here to read my previous article on nomination and documentation in detail in Tamil.

 Documentation of The Financial Management (Documentation)

http://bit.ly/DocumentationNomination

 Gist summary of info from the above linked Tamil article is given here

Add nominations to your investments in bonds, stock trading, RBI’s gold investment and its government bond, small savings, dmat account. A lot of people do not do this, but this is necessary. You may nominate someone today and a couple years down the line you may end up not liking them, this is normal human behavior, and the nomination can be changed.

Is the work done once you have filed the nomination? Nope! Why? Think deeply, you would be able to understand. If you nominate your spouse, your child’s spouse might question why your child was not nominated. If the child is nominated, there is a question of if they would pass on some money to the other parent. To avoid these disputes, the investor does not reveal their nominations and hides it. What this does is, in future their family does not realize what all investments the investor made. Now do you understand it is not over if you just file nominations and that must inform your nominees suitably about the investments you have made.

To be a little specific, sit down with your nominees and explain your investments and on what they need to do to claim the proceeds, so that it is easier for them to fill out the forms later.

To invest is one thing and to make sure our investments reach the correct person after we is another thing. Please do both these things correctly.