The September 30, 2023, deadline for updating the nomination for your mutual fund (MF) investments is drawing near. However, many investors are yet to complete this task. As per the records of the registrar and transfer agent (RTA) CAMS, there are as many as 25 lakh PAN holders that are yet to update their nomination details. That means, these PAN holders have still not managed to either select a nominee/s or opt out of nomination of their MF folios. If the data for the other RTA, KFinetch were to be added, the number would be even larger. An email sent to KFintech on this remained unanswered.
Furthermore, assuming that most of these PAN holders likely have investments in multiple MF schemes, the magnitude of the problem cannot be overstated.
What if PAN holders fail to update details
Failure to update nomination on time will result in your MF folios getting frozen for all debit transactions. That is, you will not be able to redeem / make withdrawals from any of these investments. You can, however, continue investing in your existing folios.
Given the hurdles investors were facing in updating their nomination by the earlier March 30, 2023, deadline, the Securities and Exchange Board of India (Sebi) extended this to September 30, 2023.
Many mutual fund distributors (MFD) we spoke with highlighted several hurdles that investors are encountering in updating their nomination.
Nomination problems in jointly held investments
As we had highlighted in our March 2023 article, too, those with jointly-held MF folios – where the investment is in the name of more than one individual - have faced difficulties in updating their nomination details online.
You can update the nomination for such folios on CAMS and KFintech websites, for example. But any update in nomination, whether done online or via physical form submission, requires the consent of all joint holders. When done online, this depends on OTP-based authentication.
So, unless the folio has the contact details (email ID and mobile) of all the holders, or at least the KYC records with the RTAs have the contact details of the joint holder (that is, the second holder in case of two holders), this cannot be done online.
According to Herat Gandhi, Customer Service Head, Prudent Corporate Advisory Services, if the contact details are missing in the KYC records too, the only way to do this is by submitting a physical nomination form.
Providing some context to the current problems in updating nominations, Gandhi says, “In the past, one had to provide the contact details of only one of the joint holders at the time of investing, whether online or in paper form. There was no provision to give the contact details of the other person. As a result, these details are missing in people’s old MF investments.”
CAMS, KFintech and MFCentral, an MF transactions platform backed by the two RTAs, give you the option to update your contact details in your folios. Questions sent to CAMS and KFintech on this remained unanswered. The article will be updated once we receive their responses.
In case of the MF industry-backed platform Mutual Fund Utilities (MFU), new investors can update nomination online when they first register on MFU. But, as of now, existing users of MFU can update their nomination only by submitting a physical nomination form. “We want to bring some enhancement in the online process and that is still under development with the RTAs,” says Sunil Nair, Chief Operating Officer, MFU.
Also read: Confused about which mutual funds to invest in? Check out MC30
Signature mismatches, inactive mobile and email IDs
In instances where investors have been unable to update their nominations online, the alternative is to submit physical nomination forms. But as many MFDs point out, here too, many problems have cropped up.
“Many forms have been rejected due to a signature mismatch. People’s signature change with time and their current signature may not match with the signature in their older folios,” said Foram Shah, a Mumbai-based financial planner, associated with ACE FnSupermarket Pvt Ltd.
This can be a problem, particularly with senior citizen investors.
Is there a way out?
Amol Joshi, Founder, Plan Rupee Investment Services, says an investor can submit a 'Banker's Attestation of Signature' form that has been signed by his/ her folio-linked bank branch to the respective RTA or fund house.
Furthermore, as Amit Bivalkar, Founder Director, Sapient Finserv Pvt Ltd, a large MFD, mentions, many senior citizens may not even have an email ID.
“The lack of an email ID should not be an impediment to investment,” remarks Bivalkar. With an update in nomination (as with many other MF transactions) requiring two-factor authentication or 2FA, an investor without an email ID may not be able to go ahead with this. The 2FA is a security measure that requires two levels of verification, say, by having to enter two OTPs -- one received on an email ID and another on a mobile number, for a transaction to go through.
Even where MF investors do have email IDs, they could still get stuck. Talking about practical problems that she faced with her clients, Prableen Bajpai, Founder, FinFix Research and Analytics, a financial services and research firm, says that people’s email IDs can change over time or run out of storage, in which case they will fail to receive the OTP.
Similarly, a change in mobile number over time, too, can result in the same problem. If your older folios have a mobile number that you no longer use, you will first have to update your contact number before you can proceed with updating nomination. Bivalkar says that this is a problem many Army personnel, who have to keep changing base frequently, face.
A few MFDs also mentioned that NRI investors (as they may not have an active Indian mobile number) could be facing trouble with nomination updation.
Also read: How Roshi Jain of HDFC Mutual Fund has stepped into giant shoes and gearing up for a marathon run
Taking the physical route
So, what can investors do in all these situations? Joshi says, “Basically, there are only two ways of updating nomination, online and offline. If online is not possible, one will have to submit a hard copy of the nomination form.”
If you have investments with only one fund house, you can download the form from its website (or from the website of the relevant RTA) and submit it to either of them.
Those with investments across multiple fund houses can download the nomination forms from the relevant RTA websites (instead of each fund house) for simplicity, and then submit them either to the RTAs or each of the fund houses.
To know which fund house is serviced by which RTA, see here. You can use one form for updating the nomination for up to three folios (with the same fund house), if you are choosing the same nominees for all the three folios. For different nominees across different folios, you will have to use separate forms.
With just two weeks to go before the September 30 deadline, those with their nominations pending need to move fast. With the spectre of frozen folios looming large, is the deadline expected to get extended once again? Only time will tell. “I think for operational reasons, this (deadline) will have to be extended by a few months. This will help retail investors,” said Bivalkar.
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