Mutual fund nominations: Easy steps to change or add a nominee

For years, the Rs 39 lakh crore Indian mutual fund sector has been running campaigns for investors to nominate someone in their mutual fund holdings. That campaign got a big boost this month when the capital market regulator, the Securities & Exchange Board of India, made it compulsory for MF investors to either nominate someone or opt out of nomination.

The rule came into effect on October 1, 2022, for new folios. Let’s look at how you can nominate someone in your MF investment, if you haven’t already.

What has changed?

The nomination facility enables the person or persons nominated to receive the benefits of investments in the event of an investor’s death.

The facility in mutual funds has been around for years. Application forms have always had a column for appointing nominees. Savvy and prudent investors have been nominating their near and dear ones to ensure smooth transmission of assets after they pass on. Mutual funds are no different. And to be sure, nomination was a must for folios held in single names.

However, SEBI has made it mandatory to nominate someone or opt out of nomination for existing folios, including those that are jointly held. If existing folio investors do not comply with this norm, then their investments will get frozen and they cannot transact in them. The deadline is March 31, 2023.

New folios can be created only after you register your nomination or clearly opt out of it.

How to comply

The investors going through an intermediary can update their nominations if they are not already in place by following the prescribed process.

The offline or physical application route: Accounts opened using the paper route, referred to as carrying the wet signature of an investor, are considered to be compliant with the norms if they have explicitly chosen a nominee or opted out in the application form duly signed by the investor. If they have not done so, they can still do so by filling up the nomination form, signing it, and then submitting it to the registrar and transfer agent (RTA) or the mutual fund house.

For accounts opened online: If you have opened an investment account online, check your mutual fund statement. See if your folios have a nominee in place.

“The way it is important to nominate someone for your bank account, your mutual fund folios too must have a nomination in place. Do not wait till the last moment to validate nominees for your folios,” said Amol Joshi, founder of Plan Rupee Investment Services. “Investors with Common Account Number (CAN) given by MF Utilities can complete their nomination validation on the portal quickly.”

MF Utilities is a platform that facilitates mutual fund transactions for investors, distributors and other stakeholders.

This process can be done online using the two-factor authentication if you are transacting through an intermediary. After you login into your account, you can validate your nominee details with the help of a one-time password (OTP). If the folio is held jointly, then each investor needs to validate. Separate OTPs will be sent on mobile phone or email.

MF Utilities has reached out to distributors and investors for those CANs where the nomination validation is pending. In case of MF Utilities, nominations are mapped to CAN. The CAN-based nomination ensures that one nominee (or a set of nominees) is applicable for all folios mapped to that CAN.

In case you transact on other online platforms that are stock exchange-backed or RTA-backed transaction solutions, be prepared for two-factor authentication for existing folios. New folios will be created only if you appoint a nominee or opt out of it explicitly. Your distributor’s platform will prompt you for the same when you login into your investment account.

If you are a direct investor, you can change your nominations through MFCentral, an investment management platform. It allows this facility for only single holding folios using OTP-based authentication. After you make the necessary changes in your folios on MFCentral, you can track the status of your request on the portal and the mutual fund house sends you a message after your request is processed completely. For jointly held folios, you need to approach the fund houses.

“You have to seed folios with your contact details. An OTP is sent to you, using which you can easily validate your nominations,” says Sanjay Shah, founder of Prudent Corporate Advisory Services. He reiterates that one should not shun this small process of appointing a nominee, even if you need to take extra effort.

“It makes transmission smoother compared to those folios where there is no appointed nominee,” he added.

Some individuals may have quoted the mobile number of a family member while opening a mutual fund folio. Mobile numbers or email ids belonging to guardians, parents, siblings, self, spouse and sons or daughters can be used provided the investor certifies to that effect. This can be done online as well as offline in the prescribed format.

Nominations are crucial

Investing in mutual funds can help you achieve your financial goals. However, there are some financial goals that may go beyond your lifetime – for example, your spouse’s retirement or your children’s education.

“Changes in regulations are a good opportunity to review nominations to all investments including mutual fund folios,” said Suresh Sadagopan, founder of Ladder 7 Financial Advisories. “Appoint the intended beneficiary of the investment as the nominee for that investment. It curbs the chance of disputes at a later date.”

You can change your nominations by writing to your fund house or by amending them in your investment accounts held with online platforms. This can be done using permissible online and offline modes. In the case of joint holdings, make it a point that the same is backed by signatures or validation of all the investors.

MF Utilities is working on the process of offering folio-level nominations if an investor wants to nominate separate nominees for folios mapped to one CAN, instead of the current system of ‘one CAN, one nominee’ for all folios.

Fund houses and RTAs are improving their processes to make nomination procedures convenient.

Keep track of your mutual fund investments and take steps to stay on top of your financial plan.