Mutual Fund Units To Be Frozen If Investors Do Not Update Their Nominees By March 31
A nomination can be made either at the time of the initial application for the purchase of units or at a later date.
All investors in mutual funds must update their nominees by the end of the month or opt out of having a nominee, or their folios will be frozen, according to a circular issued by SEBI last year.
If an investor has not submitted their nomination or opted out, they will be unable to redeem their units or undertake operations like systematic withdrawal plans or systematic transfer plans from Apr. 1.
The SEBI circular on June 15, 2022, said all investors subscribing to mutual fund units on or after Aug. 1, 2022, would need to either provide a nomination for their units or opt out of nomination through a signed declaration form.
The Securities and Exchange Board of India has advised all the asset management companies to set a deadline of Mar. 31 for nomination or opting out of nomination for all the existing individual unit holders of mutual fund units, either solely or jointly, failing which the folios would be frozen for debits.
A nomination facility enables an individual unit holder to nominate one or more individuals who will inherit their units in the event of their demise. The mutual fund application forms have always had a column for appointing nominees, and online portals often nudge unit holders to provide a nominee at the time of subscription. It only became mandatory to get the details in August last year. Now, even if an individual does not want to nominate anyone, it must be explicitly mentioned.
Under the rules, once the nominee has been declared, the process must be validated with two-factor authentication.
"We are using an online platform, so all our clients are required to validate with an OTP, which comes on their mobile," said Harshvardhan Roongta, co-founder of Roongta Securities Pvt. "In case you want to opt out, even then, you have to authenticate it."
How To File Nomination
A nomination can be made either at the time of the initial application for the purchase of units or at a later date. The investor opting to nominate can start by filling out the nomination section provided in the account opening form. In case the investor fills up the nomination form later, they can submit it at the designated investor service centre of the mutual fund or its registrars.
A nomination, once made, can be changed subsequently at any time and any number of times, according to the Association of Mutual Funds.
Roongta explained that while filing the nomination online, a link is sent to the unit holder where the details could be validated with a two-factor authentication. There is no form required for the online process. Alternatively, an investor can submit the duly filled and signed physical form at any of the Computer Age Management Services centres.
The AMFI said up to three people could be nominated by an investor. The nomination should clearly indicate the percentage of units allotted in favour of each nominee. If this share is not specified, the asset management company will settle the claim equally among the nominees.
In cases of the death of a unit holder where no nomination is made, the units will be transmitted to the account of the legal heir or heirs, depending on the deceased person's will and applicable succession law, according to the AMFI.