When an Indian resident who owns mutual funds, shares or other financial assets dies, his nominees act as custodians of those assets until they are distributed to the investor’s legal heirs or family.
In some cases, where investors do not wish to appoint a candidate, they can formally withdraw by filing a prescribed declaration. This can be done by logging into your broker, bank or mutual fund platform account.
Can you name an NRI as a candidate?
Yes, even a Non-Resident Indian (NRI) can be appointed as a nominee, subject to compliance with the exchange control rules applicable from time to time, as per the information available with the Association of Mutual Funds of India (AMFI).
If the original account holder selects an NRI as nominee, the claim process may involve additional documentation and compliance requirements, depending on the type of asset and applicable regulations.
For example, Zerodha users are allowed to add an NRI as a nominee, but their address and mobile number must be Indian. Clients are not required to provide proof of address when adding a candidate, the stockbroker’s website says.
Can NRIs claim and transfer these funds?
According to Nishant Shanker, tax and FEMA expert at Navraj Global Advisors, if the NRI candidate is also the legal heir and legal owner of the said financial assets, he can liquidate the inherited investments and seek repatriation of the proceeds as per Foreign Exchange Management Act (FEMA) rules.
Under FEMA, an NRI or person of Indian origin (PIO) can generally transfer up to US$1 million per financial year from their non-resident balance sheets (NROs) or proceeds from the sale of inherited assets, subject to documentation and payment of appropriate taxes.
Any amount exceeding $1 million requires prior approval from the Reserve Bank of India (RBI).
“In practice, the proceeds are usually routed through the NRO account and the AD banker, who will verify the inheritance documents, tax compliance and FEMA requirements before allowing the money to be transferred overseas,” he added.
How to nominate an NRI?
The nomination can be made either at the time of initial application to purchase mutual fund units or subsequently. The same rule applies to stocks.
To nominate yourself for your first investment in a financial asset, an applicant may complete the Nomination section provided on the account application form. Subsequently, the nomination may be registered upon submission of a duly completed nomination form to the designated Investor Service Center of the mutual fund or its registrars.
Similarly, for equities, an investor can add a candidate online by logging into their stock broker or depository member portal, such as through the online nomination option of National Securities Depository Limited (NSDL).
Just because you nominate someone once doesn’t mean they have to stay in office for the duration of your tenure. You can change your candidate several times, preferably after important life events such as marriage, divorce, birth of a child or adoption, and the death of the first candidate.
How many candidates can you nominate?
According to AMFI, a person can nominate up to three people and clearly indicate the percentage of allocation in favor of each of the candidates next to their names, and such percentage must be expressed in whole numbers without any decimal places.
For financial assets like shares and mutual funds, you also need to authenticate the request using Aadhaar based OTP. The nomination form must also be signed by the unit owner. In the event that units are jointly held, all joint holders will be required to sign the designation form, regardless of the mode of operation of the account.
Submitting a new nomination request will simultaneously cancel the existing nomination and replace it with a new one. Simply put, this means that a new nomination for a portfolio or account will automatically overwrite an existing nomination.
Does a nominee automatically become an owner?
Not necessarily. A truly registered nominee usually has the right to file a claim and receive money from the designated authorities. However, the nomination itself does not determine the ultimate beneficial owner of the amount.
The final distribution of financial assets upon the death of the original investor is governed by the decedent’s will or, in the absence of a will, by applicable inheritance laws. This is why experts advise investors to make a will, thereby avoiding legal disputes between family members.