Investors in mutual funds can nominate a successor on whom the investment will devolve on the death of the original investor. If the original investment was made jointly by more than one investor, then the proceeds go to the nominee on the demise of all the holders. The procedures to be followed for the process of nomination are laid down under Section 29A of the Sebi (Mutual Fund) Regulation of 1996.

Nomination makes it easier for the relatives of the investor to get the benefit of the mutual fund investment transferred on the death of the investor. In the absence of a nomination, the process and the documentation required are more complex and time consuming.

Who can nominate? Asset management companies allow individual unitholders to nominate a person as a nominee. But only individual investors can have nominees; non-individuals including corporate bodies, partnership firms, trusts, kartas of Hindu Undivided Families and power of attorney holders, cannot.

Who can be a nominee? Only an individual can be a nominee. A minor can also be a nominee, but the name and address of the guardian are needed. An NRI can be a nominee for a resident holder, but only on non-repatriable basis, that is, the redemption proceeds cannot be taken out of the country by the NRI nominee. Each mutual fund folio can have only one nominee irrespective of the number of holders and the number of schemes held under the folio.

When can the nomination be done? The nomination can be done either at the time of purchase of units or later, at any time. The application form for buying units also, usually, has space for nomination. If you are nominating someone after buying the units, you have to submit an application. Make sure you give correct and complete details of the nominee to avoid confusion later.

Change/cancellation of nomination. A nomination can be changed in favour of another nominee or cancelled at any time. The request for such a change has to be signed by all the unitholders who made the original nomination. The nomination can be changed any number of times and there is no requirement for the nominee to be informed about the change. If the nominee dies before the investor and the nomination is not changed, the nomination is considered void.

Nomination or Will? While a Will deals with all the assets of an individual, a nomination deals with the particular investment that an individual has made.

The mutual fund is obliged to follow the instructions as given in the nomination. If there is a dispute on inheritance, the nominee is considered to hold the proceeds in trust for all the claimants till the dispute is legally settled. If the investor has made a nomination and a Will, which are in conflict, the Will supersedes the nomination.

Having a nominee has no financial implication on the investor. Its advantage lies in the ease it brings to the transfer of benefits of a mutual fund investment on the death of the investor.