From Bank Accounts To Mutual Funds: Why Every Financial Asset Needs A Nominee

Most people spend years building their savings, buying a home, investing in mutual funds, or creating fixed deposits with the hope of securing their family's future. But have you ever stopped to think if something were to happen to you tomorrow, will that money reach the right person in time, or will there be delays and litigation with family members fighting over your hard-earned money in courtrooms?

Nominations are the answers to all these questions. A nominee is basically the first point of contact that any bank/ financial institution will deal with when the original account holder passes away. Your nominee can claim your bank deposits, insurance money, mutual funds, shares, and even the balance in your PF account.

Opting for a nomination may seem like just another formality, but carefully choosing your nominee can help your wealth pass onto the right hands smoothly. Choosing an incorrect nominee or not updating the nomination form can land you in trouble with confused family members fighting over your assets.

Why Does A Person Need A Nominee?

Nominees are like custodians of the assets of a person who died. Therefore, when the asset holder dies, the nominee becomes legally entitled to receive the eligible asset. Note that a nominee can sometimes not be a legal heir of that particular asset. They will have to become the guardian of that asset until the actual legal heir is declared. A person can have different nominees for his/her various types of assets/accounts.

He/she can nominate different people for his/her various FDs, savings accounts, PPFs, mutual funds, life insurance policies and so on. Also, you can choose either single or multiple nominees depending on the asset type. Investment products like insurance policies and mutual funds support multiple nominees. In case of multiple nominees, the asset gets divided among the nominees as per the shares allocated by the asset holder. Remember that in a bank account, only a single nominee is allowed.

According to financial experts, there are multiple reasons why nomination is important. Though it is important to add a nominee in your bank account, however most of us tend to forget to add a nominee or update nominee details in multiple investments. Make sure you add the right nominee, someone to whom you actually want to transfer your assets.

Who Can Be A Nominee?

You can nominate anyone you like - be it your spouse, relative, parents, friend, and so on - for your asset. Also, the nominee you choose doesn’t have to be your legal heir to your property/asset. If your nominee is not your legal heir, then they will become the custodian of your asset. You can choose only a single nominee for your bank account. However, for RDs, FDs, and other investments you can choose different nominees.

In mutual funds, you can nominate a maximum of three people under a folio. If you hold multiple schemes under a single folio, the nomination would be same for all the schemes. If you add nomination details for one scheme, it will get updated for all other schemes in that particular folio.

Your Wealth Is At Risk If You Don’t Add A Nominee

If you do not add a nominee for your assets, your hard-earned money is at a greater risk. This is especially true if there is some confusion following your demise due to non-existence of a Will. Your asset is more likely to reach your desired legal heir if you have a nominee mentioned for your assets.

Also, if you do not carefully choose the nominee for your assets, your wealth is at a risk of being misused by the nominee. In certain financial instruments like an endowment policy, the beneficiary nominee can claim the maturity amount in case of the holder’s untimely death. If you don’t carefully choose the beneficiary nominee, your legal heir might have trouble claiming the endowment policy’s benefits. Hence, it can be safely concluded that while nomination is necessary, choosing the right nominee is more important.

The most recent nomination details you have updated for your assets will be validated at the time of the settlement. Make sure you don’t leave your assets without a nomination. Declare nomination for all your investments - be it in mutual funds, insurance, shares, small savings schemes etc. Also remember to review the nominations of your various accounts from time to time and make changes, if necessary. Nomination of a person is different from his/her legal heir. So, make sure you have your Will ready to help your intended heir avoid any dispute.