Many people want to give mutual fund units as a sign of love to their loved ones or to bequeath them to their loved ones once they pass away. The transfer procedure, however, is not without its complications.
The procedures and documents are still unknown to the majority of individuals for the transferability of mutual funds. In addition, the unitholder must register the nominee for all folios.
An individual unitholder or a group of unit holders can name someone to claim the units in the event of the unit holders’ death. There might be a sense of unease when an investor fills out the information of a nominee while establishing a bank account or investing in a mutual fund scheme. This is an essential procedure for the transmission of mutual funds.
Although everyone understands that death is unavoidable and that investors should name someone to claim their mutual fund units in the event of their death, many investors are hesitant to learn about the nomination process. In some instances, they do not even fill out the nominee information, making it difficult for their legal heirs.
According to the AMFI (Association of Mutual Funds in India), the nomination is a simpler and less expensive approach to make it easier for one’s loved ones to claim the money in one’s mutual fund folio, Demat account, or bank account quickly and with little paperwork following one’s death.
Transmission/Transfer of mutual fund units
The ‘transmission’ of mutual funds occurs when units of a mutual fund are transferred to a surviving member in the event of the first holder’s untimely death. On the other hand, a ‘transfer’ is considered to occur when all unitholders are alive.
Mutual fund transfers are a shady issue since mutual fund units can be transferred under the Securities and Exchange Board of India (SEBI) regulations of 1996. On the other hand, the fund houses do not allow all unitholders to transfer their units at the same time. They argue that there is “no use” in moving funds because these mutual fund units may be simply sold and liquidated.
Mutual fund units are rarely transferred from one holder to another. As a result, giving mutual fund units is a speculative idea that is virtually impossible to implement.
In truth, mutual funds do not accept ‘third party’ contributions. One cannot invest in his or her own name with his or her spouse’s money, or vice versa. This may appear complex, but it is the sole procedure that must be followed in order to transfer mutual fund units. So, if you want units to be in the name of a relative, you must first send money to the receiver’s account. You may then use that money to invest in the fund that bears their name.
The only time mutual fund units can be transferred to another person is if the unitholder passes away. This is frequently in the name of a joint holder or a legal nominee to whom a mutual fund unit is transferred.
In the case of a single unit holder
It is simpler to claim and transfer units to the nominee if the holder is a single holder, with or without nomination, instead of investors who have failed to nominate in their mutual fund investment. As a result, it is critical to nominate and evaluate nominations throughout time.
In case of more than one unit holder
The surviving unitholder (joint holder) must submit a transmission request form (T2) together with the papers if the deceased was the first holder. It is a possibility that the second or third unitholder might pass away. In this instance, the surviving unitholder(s) must fill out form T1 and request that the name of the deceased 2nd and/or 3rd holder be removed.
The surviving unitholder would also need to present the following:
- Deceased’s death certificate, duly signed by a Gazetted Officer or
- A Notary Public,
- A new bank mandate form,
- A canceled check of a new bank account (only if the previous bank mandate is changed),
- A new nomination form,
- A new KYC form (s).
If a son or daughter wishes to inherit their parents’ mutual fund investments
Only after the unit holder’s death can the transmission take place. If the unitholder is still living, his or her children’s names can be added, or the unitholder can withdraw monies and transfer them to his or her offspring.
What happens if the unitholder does not name a nominee?
The list of documents required are
- Any relevant document evidencing the relationship of the claimant/s with the deceased unitholder/s
- Bond of Indemnity, to be furnished by Legal Heirs for Transmission of Units without Production of Legal Representation,
- Individual Affidavits to be given by each legal heir
- NOC from other Legal Heirs, where applicable, if the transmission amount is up to 2 lakh.
Individual Affidavits from each legal heir and any one of the following documents:
- Notarized copy of Probated Will;
- Succession Certificate issued by a competent court; or
- Letter of Administration or court judgement, in case of Intestate Succession, if the transfer amount is more than 2 lakh.
Awareness of the Transferability of Mutual Funds
According to financial experts, there is a need for a greater understanding of unit transfer in mutual funds. While many unitholders are aware that MF transfers are possible, the majority are still uninformed of the process and documentation that must be completed in the case of death. Investors should create a checklist for a seamless transfer procedure to minimize future headaches. They must make certain that the nominee has been registered for all folios and that the nominee’s name matches the name on their PAN card.
As a result, in addition to investing in mutual funds, an investor should double-check that the nominee information is correct. Though unit transmission in the event of the unit holder’s death is straightforward, the nominee or legal successor can contact the Asset Management Company for a rapid and painless transfer.