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Who Gets Your Mutual Funds When You Die? Nominee vs Legal Heir

31 December 2021

You must have made extensive plans for investments or savings. This would include several options including stocks, mutual funds, property, insurance, pension schemes, PF, debentures, and gold. This is your cushion for retirement. These are the assets you want to leave for your children and grandchildren, and any emergencies that come your way.

But, what happens to the mutual fund investments that may have grown in value over time in the case of the death of the unit holder? Who gets them? Can you choose the persons you want to pass these mutual funds to?

The nominees usually receive the money. However, there is a gray area when it comes high-value mutual funds. Many investors may not have necessarily named their legal heir as nominees. Such investors don’t leave a Will or may not have mentioned the nominees at all. This can lead to a long and ugly legal battle in the Court among the potential beneficiaries.

Read on to know who gets your mutual fund investments after your death.

Difference between a nominee and a legal heir

A nominee is the custodian of your assets. You must have been asked to nominate someone when you were registering to invest in mutual funds. This was most likely your parents, children, grandchildren, or spouse. A nominee is a person you have chosen and nominated to receive the mutual funds after your death.

Nominees also act as the trustees of the assets. But the catch as per law is, it is so only until it is legally transferred to the rightful legal heir. It must be noted that nomination, for an asset like mutual funds, doesn’t deem the nominee as the owner of the assets.

A legal heir, on the other hand, is a person who succeeds the deceased. He or she is entitled to all their assets, including mutual funds.

As per the Indian Succession Act, 1925, the legal heir is generally the spouse, children, grandchildren, or parents of the deceased person. As per the 2005 Amendment to the Act, married daughters are also legal heirs to the deceased parents’ mutual funds.

The Indian judiciary has time and again been fraught with the issue of legal heir vs. nominee. This is specifically true when it came to succession of the assets of the deceased. Notably so, Indian Courts have held the view that the rights of a legal heir supersede the rights of a nominee.

What happens when you have a Will?

When you have a Will in place before you die, you formally mention the persons to whom your assets, including your mutual fund investments are to be bequeathed to. If you draft a Will, you have the freedom to choose the person who gets these assets after your death.

The important thing to note here is that your nominee, who could be anyone, need not necessarily inherit these assets. A Will supersedes all other claims. That is the importance of a Will. And Indians are yet to wake up on this. The emergence of new-age millionaires could lend clarity to the debate of who gets the assets as drafting of Will gets further adoption.

For example, let’s say you have mentioned person ABC as your nominee in your mutual fund investments. But when you draft a Will you can put in the name of person XYZ to whom these mutual funds are to be given. This person need not necessarily be your children, spouse, or kin. It can be anyone. As long as the Will specifically mentions them as the inheritors of these mutual funds, no one else can claim the right to these mutual funds.

What happens when you don’t have a Will?

In case you do not have a Will in place, the mutual funds will be transferred to the designated nominee. As stated by the deceased at the time of purchasing the mutual funds units. However, there may be times when the nominee is not the legal heir. There is no compulsion here. In such a situation, the legal heir may need to fight a long legal battle to prove rightful heir. And gain the rights to the mutual fund investments.

Happy investing!

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