Investors who skip nomination in their mutual fund or equity accounts could leave their families facing a long and paperwork-heavy process to access those assets.
The Securities and Exchange Board of India (Sebi) now requires investors to either register a nominee or formally opt out. The rule ensures that investors make an explicit choice, instead of leaving the nomination field blank.
Even if you opt out, your investments do not lapse. But the absence of a nominee can significantly delay the transfer process.
If no nominee is registered, holdings are passed on to legal heirs through a transmission process. This typically involves more documentation and longer timelines.
Legal heirs must establish their claim using:
Death certificate
Identity and relationship proof
Succession documents
If there is a will, heirs need probate from a court. Without a will, they must obtain a succession certificate — a process that can take months or even over a year. During this period, the assets remain frozen, with no authority able to release them without legal clearance.
For smaller holdings, some fund houses or depositories may accept a notarised indemnity bond and affidavit, but this is not guaranteed. For large investments, a formal legal route is unavoidable.
A common misconception is that a nominee becomes the owner of the assets. In reality, the nominee only acts as a custodian.
The final ownership lies with the legal heirs, as defined by:
The will, or
Applicable succession laws
This means conflicts can arise. For instance, if a nominee is different from the legal heir, the latter can challenge the claim in court. Experts advise aligning the nominee with the intended heir or clearly stating intentions in a will.
The transfer of investments after death is treated as inheritance, not a sale. So, there is no capital gains tax at the time of transfer.
However, tax applies when the heir sells the assets later. In such cases:
The original purchase cost is retained
The original holding period is also counted
This can affect whether gains are taxed as short-term or long-term.
The transmission process varies depending on the type of holding:
Mutual funds: Nomination must be made to the asset management company or registrar
Demat shares: Transfer is handled through the depository participant linked to National Securities Depository Limited (NSDL) or Central Depository Services Limited (CDSL)
Physical shares: Most cumbersome; requires submission of original certificates to the registrar and transfer agent
Sebi has been encouraging investors to convert physical shares into demat form to simplify such processes.
While opting out is allowed, nomination helps avoid delays, legal costs and uncertainty for families. Without it, even straightforward claims can turn into lengthy legal procedures.
Ensuring that your nominee and legal heir are aligned — and backing it up with a clear will — remains one of the simplest ways to safeguard your investments.
(By arrangement with livemint.com)
