No nomination in mutual fund or demat account? Here’s how legal heirs can claim investments

When investors consider building wealth, they focus on returns, asset allocation, and market timing. What often gets ignored is a far simpler but far more important decision: adding a nominee.

It may seem like a small checkbox in an application form. But skipping it can leave your family dealing with tedious legal paperwork, delays, and in some cases, disputes at a time when they are already coping with the loss of a dear one.

ET Wealth Online presents a detailed ground-level look at what actually happens to mutual funds and shares if an investor passes away without a nominee and what legal heirs can do to manage the situation.

Why adding a nominee in mutual funds and demat accounts is crucial

SEBI now requires investors to either register a nominee or formally opt out. While this may appear procedural, it has significant real-world impact.

“A nomination does not override succession law, but it plays a crucial operational role i.e. It identifies a person who can immediately be identified as a recognised recipient of the assets, allowing financial institutions to process transmission without insisting on court-issued succession documents at the threshold,” notes Advocate Mayank Arora, Partner at Chambers of Bharat Chugh.

It’s important to understand, however, that a nominee is not the ultimate owner.

Legally, the nominee is only a facilitator or trustee, someone who collects the assets on behalf of the legal heirs. The actual ownership lies with legal heirs as per succession law or a valid Will.

What happens to mutual funds and shares after death without a nominee

One common fear is that investments might vanish or be taken over by institutions if there is no nominee. But that is not true.

The investments continue to remain invested in the name of the deceased investor. However, they effectively become inaccessible.

“The account is effectively frozen and redemption, transfer, or operation is not permitted by the investment companies/ intermediaries until transmission is completed,” explains Arora.

These financial assets form part of the overall estate of the deceased and can usually only be accessed by legal heirs in accordance with succession law and SEBI’s transmission framework in the absence of a declared nominee, he adds.

In simple terms: the money is still there but no one can withdraw it yet.

Claim process for mutual funds and shares without a nominee: Step-by-step guide

In the absence of a nominee, the burden shifts entirely to the legal heirs.

The process typically unfolds like this:

• The family informs the mutual fund house, broker, or depository about the death
• A death certificate is submitted
• A Transmission Request Form is filed
• KYC, PAN, and bank details of claimants are provided
• Most importantly, heirs must prove their legal entitlement

This last step is where things get complicated.

“Crucially, they must establish their entitlement as rightful legal heirs. This exercise typically requires a combination of documents such as a legal heir certificate, succession certificate, probate, or letters of administration from a competent court, depending on the nature of the case,” explains Arora.

In many cases, institutions also ask for affidavits and No-Objection Certificates (NOCs) from all legal heirs.

Once the documentation is verified, the securities or units are transmitted to the claimant’s or legal heirs’ account, after which normal rights can be exercised by them on such assets, adds Arora.

With a Will vs without a Will: How inheritance of investments changes

Whether the investor left behind a Will can significantly change how smooth or messy the process becomes.

• If there is a Will: It clearly states who should inherit the assets. However, institutions still require probate or legal validation before acting on it.
• If there is no Will: The entire process depends on succession law. All legal heirs must come together and provide court-recognised documentation.

According to Arora, the absence of a Will often leads to disputes or delays, as multiple heirs may need to agree and coordinate.

Opting out of nomination: Does it affect legal heirs?

Some investors consciously choose to opt out of nomination under SEBI rules. But does that make things harder for heirs?

Not really.

Opting out does not materially change the situation. The transmission process remains the same as in cases where no nominee was registered earlier, says Abhijit Talukdar, Founder of Attainix Consulting.

Rules for small investment claims without nominee

There is some relief for families dealing with smaller investment amounts.

“There is a simplified process in place for MF or depositary claims below Rs 15 lakh. Succession certificate is not required below these limits. There is a consultation paper from SEBI that proposes to enhance these limits to 30 lakh as well as require only a death certificate for very small claims (below 30,000),” explains Talukdar.

This proposal is yet to be notified. In practice these procedures have been standardized by depositories and AMCs for small claims without nominations. Disputes typically arise in the case of larger amounts triggering full probate requirements, he adds.

How long does transmission take for mutual funds, demat and physical shares?

The time and effort required depend on the type of investment, according to Talukdar:

• Mutual funds: Typically 2–3 weeks (relatively straightforward)
• Demat shares: Around 1–2 months
• Physical share certificates: Anywhere between 3 months to a year

Tax on inherited mutual funds and shares: Capital gains rules explained

There is one piece of good news. There is no inheritance tax on mutual funds or shares in India.

However, tax comes into play when the heir decides to sell or redeem the investment.

“The cost of holding for the legal heir is stepped up to the FMV/NAV on the date of death of the relative, resetting the tax clock favorably for the legal heir. This step up erases prior unrealized gains, minimizing capital gains tax on sale for the legal heir,” explains Talukdar.

This effectively wipes out past unrealised gains, often reducing the capital gains tax burden for the heir.

The absence of a nominee does not take away your family’s right to your investments. But it does make accessing them slower, more complex, and sometimes emotionally draining.

In contrast, adding a nominee is a simple, one-time step that can dramatically ease the process.