Nomination - An important aspect of investment
Every time you fill up a form for an investment, whether it’s a Fixed Deposit or Insurance, Shares or a Mutual Fund or even if you’re opening a new bank acco...
Every time you fill up a form for an investment, whether it’s a Fixed Deposit or Insurance, Shares or a Mutual Fund or even if you’re opening a new bank account, there will be a separate section that will ask you to mention a ‘Nominee’. This column is often left blank by a lot of people who are investing or opening an account, but it shouldn’t be, and here’s why.
What is Nomination?
Nomination is a facility that enables a deposit account holder, investor in mutual fund/other financial instruments or safe deposit locker holder to nominate an individual, who can claim the proceeds of the deposit account, investment or contents of the safe deposit locker, post the demise of the original depositor, investor or locker holder.
Who is a Nominee?
A Nominee is a person whom you can list in your investment or bank application as the person who can receive the proceeds of your account in case of your unexpected death.
The nominee can be anyone you deem to be your first relative - your parents, spouse, kids, siblings etc. Some investments also allow you to have multiple nominees where you can assign percentages of your money to each one of them. If you don’t specify percentages, it is shared equally.
Why nominate someone?
In case of the unfortunate event of one’s demise, one’s family/ near ones go through a very painful and difficult time of coping up with the loss. To add to this, whether we like it or not, financial security and means is necessary for the surviving partner or your close ones. All financial institutions have standard and simpler processes for settling death claims, where nomination is clearly mentioned in the account or folio.
However, in the absence of nomination, process of settling a death claim may require a host of documents, including death, succession certificates, a will or a court order. Although it may sound simple on paper, it ends up being a long drawn process in real life and it is not a situation in which you would want to put your loved ones at a time, which would anyways be an already emotional situation for them.
Why is nomination critical?
Nomination is a critical activity which a lot of us miss out, which eventually creates a lot of unwanted hassle for our nearest ones.
There is startling data from the RBI which shows thousands of crores of unclaimed deposits lying in banks across the country. These are deposits which are lying in accounts where the original owner has not claimed the money, or deceased and had not filed nomination details. This by itself is a proof of how difficult it can be to retrieve your money where there is no nomination done.
Points to remember while doing Nomination:
- Mention the full name, age, address and your relationship with the nominee.
- Do not write the nomination in favour of "wife" and "children" as a class. Give their specific names and particulars existing at that moment.
- If the nominee is a minor, appoint a person who is a major as an appointee giving his full name, age, address and relationship to the nominee.
It is advisable to take out some time to regularise “nomination” in all your financial instruments, assets, bank accounts and lockers. You will render them a huge help when they need it the most.
An Investor Education & Awareness Initiative
Disclaimer – This document is for general information only and does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this information. This document provides general information on performance; financial planning and/or comparisons made are only for illustration purposes. The data/information used/disclosed in this document is only for information purposes and not guaranteeing / indicating any returns. Investments in MFs and secondary markets inherently involve risks and recipient should consult their legal, tax and financial advisors before investing. Recipient should also understand that any reference to the indices/ sectors/ securities/ schemes etc. in the document is only for illustration purpose and should not be considered as recommendation(s) from the author or L&T Investment Management Limited, the asset management company of L&T Mutual Fund or any of its associates. Recipient of this information should understand that statements made herein regarding future prospects may not be realized or achieved. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.