The March 31, 2023, deadline for mutual fund (MF) nominations is fast approaching. By this date, you must ensure that either you have a nominee/s for your MF investments or, if you don’t wish to have one, you should explicitly opt out of nomination. This must be done for each of your MF folios.
Folios where you fail to do so will be frozen. That is, you will not be able to make any new investments or redemptions from these folios till you submit the relevant details. The capital market regulator, Securities and Exchange Board of India (SEBI), had issued a circular to this effect in June 2022.
But be ready to encounter hurdles in the online nomination process, especially for MF investments (folios) that are held jointly, even in ‘either or survivor’ mode. Such investors will have to take the physical or offline route for nominations. “For a nonfinancial transaction such as nomination which can have repercussions in the future, all the folio holders have to come to a consensus and appoint a nominee,” says, Foram Shah, a Mumbai-based financial planner, associated as a senior manager with ACE FnSupermarket Pvt Ltd.
That’s just the beginning. “For very old investments, many of which were done physically, there was no scope for providing the contact details of a second or third holder. That’s the reason why most people are struggling with the online mode,” adds Shah.
Note that the nomination process discussed in this article applies only to your non-demat MF holdings. For MF investments made via a brokerage account, the relevant nominee will be the one applicable at the demat account level.
What to expect
One, for jointly-held folios, you may not even have the option of updating the nominations online. This is the case with MFCentral, an MF transactions platform backed by registrar and transfer agents (RTAs) CAMS and KFintech. Or even when you have the option to complete the MF nominations process online, as on CAMS and KFintech, you may hit a roadblock unless the MF folio has the contact details of all the joint holders.
Vignesh Kumaran S, deputy vice president, KFintech, says that where there is contact information available for all the joint holders of the folio, updating nominations will not be a problem. Since one OTP or one-time password is sent for each folio holder, on some platforms, it gets difficult to recognise which OTP is sent for which holder (first or second). He says that on KFintech, they have resolved this problem (“beginning March 16”) by adding the name of the folio holder to all the OTPs sent to avoid this confusion.
According to the CAMS spokesperson too, since the nomination process depends on OTP-based authentication, unless the contact details of all the folio holders are available, this cannot be done online. As he points out, this would mean having either the email IDs or the mobile numbers of all the folio holders. And this can turn out to be a problem for many investors. “I have seen that for a majority of jointly-held folios, usually only one investor’s contact details have been provided,” says Harshad Chetanwala, co-founder, MyWealthGrowth.
For such investors, submitting physical nomination forms at the CAMS and KFintech branches may be the only way out. Still—and in keeping with the logic that the online method follows—all unitholders must consent. In simple words, your nomination form must have the signatures of all the joint holders.
Shah says that for her clients who are struggling with the online process, she’s going the “old-school way” of submitting a physical nomination form. She, in fact, recounts a case where one folio holder was in India and the other in the US. So they emailed the nomination form available on the fund house website to the person residing in India. The Indian resident was advised to take a printout of the form, sign and scan it, then email the signed and scanned copy to the daughter living abroad, and get the foreign resident to do the same and send a consolidated signed and scanned form to the fund house from her registered email ID.
According to the CAMS spokesperson, joint folio holders residing in different places can follow a similar process with them—download the form available on the CAMS website, get the signatures of all the folio holders and submit it at one of their offices.
Those with singly-held folios may, however, be able to update their MF nominations online itself. That said, certain operational challenges can complicate the process for them, too <see tables>.
To ensure that you meet the March 31 deadline, get started on your MF nominations right away. Even otherwise, having a nominee for all your investments is very critical and must be given top-most priority. “Having a nominee ensures seamless transmission of the deceased’s MF investments. The nominee is a mere custodian and is legally bound to give the legal heirs their entitlement based on the deceased’s will, or in case of no will, as per the applicable succession laws,” says Rajat Dutta, founder, Inheritance Needs Services Pvt Ltd.
Also see: MC30: The best mutual funds to invest in
Where to begin
So how do you begin the MF nomination process, and what are the challenges that you are likely to encounter?
This story’s authors conducted a test on their own MF investments, using MF Central, CAMSonline, KFintech and Mutual Funds Utility (MFU) across their portfolios, completely online, to check the efficiency of the online nomination process. We also corroborated distributors’ and advisors’ experiences to give you a reality check.
Here’s what we found.
For those who invest in mutual funds through distributors or advisors, try and get them to do it for you.
If you invest in mutual funds by yourself (direct), then an online platform where you can get your consolidated view of investments is an ideal place to begin with. You could visit each mutual fund’s websites wherever you have invested in, but that becomes cumbersome if you are spread across multiple fund houses.
We began with MF Central, a new online platform created by RTAs in association with the Association of Mutual Funds in India, that allows you to buy and sell MFs while giving you a consolidated view of your investments. Once you get an idea of your investments, check existing nominations.
With MFCentral <see table>, you can select a nominee or update an existing nominee’s details, or opt out of nomination for singly-held folios across all mutual fund houses at one place. MFCentral covers all fund houses, whether serviced by CAMS or KFintech.
The downside: You cannot use MFCentral to provide nominees or opt out of nomination for your jointly-held folios.
CAMS and KFintech, the two biggest RTAs in the Rs 40 trillion Indian MF industry, allow you to update nominees in jointly-held MF folios. You can do this through MFU, too. All the three platforms can be used for updating nomination for singly held folios. But, there is an important difference.
In case of CAMS and KFintech, both existing and new users can update their MF nominations (update nominee details, change a nominee, switch from nomination to no nomination, and so on). However, as pointed out by Amol Joshi, Founder of Plan Rupee Investment Services, in case of MFU, the existing common account number (CAN) holders cannot update their nominations online. They can do this only through submission of physical nomination forms.
“Investors can update their nomination online at the time of opening a CAN seamlessly. For any subsequent changes in nomination, we are still awaiting RTAs to enable online option which we believe will happen soon,” says Ganesh Ram, MD and CEO, MFU.
See our graphics for a detailed review.
Options for jointly-held MF folios
Investors with jointly-held MF folios can first try to update their nominees or opt out of nomination on the RTA websites. Depending on the MF houses that you have investments with, you will have to do this on the websites of CAMS or KFintech, or both.
If you are unable to complete the nominations process online, then the only way out is submitting physical nomination forms at the CAMS and KFintech offices. According to KFintech’s Kumaran, the form can be submitted by one of the folio holders in person or via correspondence. What matters most is that the signatures on the form match with those in the RTA records. Given that updating the nomination information for those who submit physical forms can take longer, it is all the more important that you take this up immediately.
If you wish to register multiple nominations per folio, make sure that the sum of the units (percentage allocation) assigned to all the nominees in any folio must aggregate to 100 percent. If not, your nomination request will be rejected.
On MFU, you will first have to apply for a common account number. This can be done online <see table>. During this process, you can update your nomination. The CAN is created by MFU for a unique combination of PAN, mode of holding (single/joint) and tax residency status. So, for example, if you are an Indian resident and you have a mix of singly and jointly held (two modes of holding) MF investments, one CAN will reflect your singly held folios and the other one, the jointly held folios across all fund houses.
According to Amol Joshi, since the nomination is done at the CAN level, it gets reflected in all the folios mapped to that CAN. However, sometimes, if the nomination does not reflect in a certain folio, you can send an online complaint to MFU.
This is a revised version of the story with our observation and experience of Mutual Funds Utility (MFU).
