When someone in the family dies, you can usually get to their bank accounts and deposits once the paperwork is in place. Locked-in investments are different. The money is there, but you cannot simply “break” them the way you might with a normal FD. Each product has its own rules, and families often discover those rules for the first time while already dealing with grief and paperwork.
A little homework now can save months of running around later. The law does allow locked-in money to be paid out after death, but how smooth that process is depends heavily on nominations and documentation, not on “influence” or persuasion at the bank counter.
What counts as a locked-in investment?
In the Indian context, “locked-in” usually means money that cannot be freely withdrawn during the investor’s lifetime except in special cases. Typical examples are NPS, PPF, EPF, Sukanya Samriddhi Yojana, Senior Citizens’ Savings Scheme, and tax-saving mutual funds such as ELSS. They were designed to make people save for retirement or long-term goals, so the rules during the person’s lifetime are strict.
After death, the philosophy changes. The law recognises that the person has gone and that the money belongs to their legal heirs. The lock-in on time largely goes away, but the lock-in on process remains: you still have to follow the specific rules of each product to get the money out.
Why nomination makes everything easier
For most of these products, a valid nominee is the difference between a relatively painless claim and a long, tiring legal route.
If there is a nominee, EPF balances are normally released to that person after they submit claim forms and basic documents. NPS allows the nominee to withdraw the corpus, even if the subscriber had not reached retirement age. PPF, which is otherwise locked for 15 years, is closed on the death of the account holder and the nominee can claim the full balance. Sukanya Samriddhi and SCSS also have clear rules for early closure or payout after death.
In practice, this works only if the nomination is properly recorded and updated. Many people open accounts when they are single, then marry, have children, change cities and never update nominees. Families then discover that the person in the nomination is an estranged relative or someone who has already died, and the claim stops being straightforward.
When there is no nominee on record
If there is no valid nominee, the institution cannot simply hand over the money to whoever turns up at the counter saying “I am the son” or “I am the spouse.” They are required to ask for proof of legal heirship, and sometimes a succession certificate or a probated Will.
This is where delays begin. Different heirs may live in different cities, some may be untraceable, and everybody is already handling other formalities such as death certificates and insurance claims. In the case of PPF, SCSS or ELSS, the claim forms can sit in limbo for months if the legal documents are incomplete or unclear.
Asset location and product rules still matter
Even though the basic principle is the same – money goes to nominee or legal heirs – the detailed procedure depends on the product and where the asset is held. A PPF account in a post office, an NPS account with a pension fund, and an ELSS folio with a mutual fund all have different forms, KYC requirements and service centres. Real estate linked to some of these products (for example, money withdrawn and used for property) may also require local mutation and registration steps.
Families sometimes assume that a single Will will instantly unlock everything. In reality, the Will helps establish who should receive the money, but each product still has its own checklist. The more clearly the Will lists account numbers, folio numbers and institutions, the less guesswork the executor has to do later.
Tax treatment does not disappear after death
Tax rules do not vanish just because the original investor is no more. Some payouts, like PPF, EPF and most SSY proceeds, are typically tax-free in the hands of the nominee. NPS and mutual funds may still have specific tax treatment depending on how long the investment was held and how the payout is structured. If the amount is large, it is worth taking one professional opinion before redeeming everything at once, rather than blindly encashing every asset the moment it becomes available.
Small steps now can prevent big headaches later
Most of the horror stories around locked-in investments after death come from simple gaps: no nomination, outdated nomination, no list of assets, or a Will that is vague about financial products. You can reduce a lot of future stress for your family by doing a few things while you are healthy and in control.
Make sure each account has a current nominee, keep a simple, written list of investments and where they are held, and tell at least one trusted family member or executor where to find that list and your key documents. Locked-in investments are meant to protect your long-term savings, not trap them. With the basics sorted, the money you worked so hard to build can actually reach the people you intended, without becoming yet another battle at a difficult time.
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