Joint Ownership Of Mutual Funds And The Need For Nomination

A key concept in investments is nomination, which guarantees the smooth transfer of funds to designated beneficiaries in the event of the investor's death. This guarantees the integrity of the investment process, the availability of funds, and the continuity of the long-term plan. There is a risk that sometimes the whole process can be derailed if no nomination is made, as the amount might become inaccessible. At the same time, there is also the option of joint ownership, which can assist investors in their planning. Even the market regulator, the Securities and Exchange Board of India, or SEBI, has made nomination optional for joint holdings in mutual funds.

Here is a detailed look at how to effectively use nominations and joint holdings.

Joint ownership in the case of a mutual fund refers to the situation where there are more than one investor who holds the units in the scheme. Consider an example where there are two holders, where the first holder is also known as the primary holder and the second investor is called the joint holder. All the actions in the investment have to be taken jointly, and hence the signatures or authorization of both investors will be required.

The whole idea of having two holders is to ensure that in case anything happens to one of the holders, there is another holder who is present. It is also a way of ensuring that a certain investment goes to a certain person in an easy manner.

The nomination process ensures that, in the event of the investment holder's death, the predetermined nominee receives the allocated amount. This is done through the process of nomination, where the holder mentions the details of a nominee or nominees. The holder authorises this specific person or multiple persons to be the receiver of the amounts when the holder is not present. A nomination can be done for any type of investment, and in the case of mutual funds, it can be done even when there is a single holder or a joint holding.

When it comes to a joint holding, the investor is already taking steps to ensure that the investment goes to the person that they want. The inclusion of a second person as a joint holder serves this purpose. In this case, if there is no nominee, then accessing the investment will not be a problem. This is because in the event of one person's death, the other holder remains, who can then take the necessary steps and convert the investment into their name. If there is a joint holding, then the nomination is not essential because the surviving holder will be able to access the investment. This is why SEBI has made it optional for joint holdings to have nominations. However, there is no certainty, and if one wants to be extra safe to prepare in case both the joint holders are not present, then they can get a nomination done. This will act as an extra layer of safety.

If a single holder dies, the amount will go to the nominee, as there is no other person in the mix. In the case of a joint holding, if the first holder passes away, the second holder will take over as the first holder, necessitating the nomination process. On the other hand, if the second holder dies, the first holder can get the second holder's name deleted, leaving the investment with a single holder, at which point the nomination becomes essential. If both holders are not alive, then the use of a nomination in the joint holding would arise, and the amount would be accessed by the nominee.

Arnav Pandya is founder of Moneyeduschool