A reader says, “I was listening to the Let’s Get Rich With Pattu podcast last Sunday, and there was a discussion about what happens when your son inherits your portfolio. Can you help me understand the difference between adding a nominee to a mutual fund and keeping your family as a second unit holder?”
“In the case of the nominee, will the units get transferred to them, or will the units be sold, and money will be transferred? I find what happens to the units after the first holder dies a little confusing – what would be the taxes, and who should the family member connect with without an advisor? Some middlemen could also be right – claiming to “help” get the money, who my family should avoid.
I would appreciate an article.”
Whenever and wherever possible and prudent*, make the intended nominee/recipient the second holder in either survivor mode. This makes transmission smooth with minimal hassle and paperwork.
* You must be confident that the person will not abuse the joint ownership (especially online account management and if they have access to the bank account used for MF purchases and redemption).
For more context, see: How your parents can easily implement “Who gets what?” (legacy planning)
The reason is the joint holder’s identity and address proof will already be available with the mutual fund AMC, the bank or any other financial institution. Their signature will also be on file.
The nominee’s proofs (ID, address, signature) will not be available with the institution and must be produced to transmit units. These can now be optionally entered, but most investors are unlikely to do this. See Implementation of the Mandatory Requirement of Nomination for Mutual Fund Unitholders.
According to the AMFI, signature verification of the nominee is an additional hassle.
“If the transmission amount is up to ₹2 Lakh, Nominee’s signature attested by the Bank Manager as per Annexure-Ia. In case the Nominee is a Minor, the signature of the Guardian (as per the bank account of the Minor or the joint account of the Minor with the Guardian) shall be attested. If the transmission amount is for more than ₹2 Lakh, as an operational risk mitigation measure, the signature of the Nominee shall be attested by a Notary Public or a Judicial Magistrate First Class (JMFC) in the space provided for signature attestation in the TRF itself below the signature of the claimant”.
Transmission to a second holder is relatively easier. Documents necessary are: attested death certificate, transmission request form, cancelled cheque with name printed or bank account statement.
What about existing nominees? We recommend updating the nominee records with the nominee’s PAN and signature with this form (to be submitted to the AMC office or RTA) to reduce hassles later. We understand that adding nominee names is possible online via MFcentral, but not their signature or PAN numbers.
Add the joint holder at the time of folio creation. Doing so later can be quite cumbersome, if not impossible. See: Investor service FAQs (under “Can I add an additional name as a joint holder in an existing folio?”)
In the nominee’s case, will the units be transferred to them or sold and money transferred? The units will be transferred to the nominee.
What would be the taxes? The transferring of MF units will not result in tax. However, if the second holder or nominee (now made first holder) wishes to sell, they will pay the tax on capital gains. The holding period for the tax calculation will be from the date of initial purchase (by the deceased).
There is no need for any middlemen. The process is simple and straightforward.
Note: Other family members can dispute the transmission of units to the second holder or nominee. Therefore, a will is still essential. We recommend disclosing the will to the family immediately upon creation (if prudent) to reduce friction later.
Please note that ease of transmission can vary from AMC to AMC. See: How I struggled to change MF unitholder status after a death in the family
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Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
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