The Securities and Exchange Board of India (Sebi) has made nomination registration mandatory for all mutual fund investors and demat account holders. According to reports from Mint, investors cannot leave the nomination field blank and must either submit a nominee's details or a signed declaration to opt out at the time of opening an account or for existing folios. This rule ensures that every investor explicitly records their choice, preventing delays and complications in asset transfer during death. As reported by Abhishek Bhilwaria of BhilwariaMF, an AMFI-registered MFD, the process becomes more documentation-intensive and time-consuming without proper nomination, with legal heirs needing to establish their claim using valid succession documents.
When no nominee is registered, holdings are transferred to legal heirs through the transmission process, but this becomes more complex and time-consuming. According to Charu Pahuja, Group Director & COO of Wise FinServ, getting a succession certificate can take months or even over a year, during which assets remain frozen. Legal heirs must produce a death certificate and proof of identity and relationship, with additional requirements depending on whether there is a will. As reported by Pahuja, if there's a will, heirs need a probate from court, while without a will, they need a succession certificate from court. For smaller-value holdings, some fund houses and depositories may accept a notarised indemnity bond and affidavit, but this is at their discretion. For significant holdings, there's really no shortcut - it's a formal legal process, and the family should ideally get a good lawyer involved early.
A nominee acts as a trustee or custodian of securities, not the final owner, as reported by Pahuja. The nominee can receive assets but actual ownership goes to legal heirs according to will or succession law. This means if a person names their brother as nominee but the spouse is the legal heir, the spouse retains rightful claim to assets. In case of disputes between nominee and legal heirs, the latter can challenge the nominee's claim in court. Pahuja advises that nominee and heirs should ideally be the same person or the will should clearly spell out intentions. The experts explained that a nominee is not the owner of your assets - they only act as a trustee or custodian of the securities and not the final owner.
When investments pass from deceased person to heir, they're treated as inheritance, not sale or transfer, making capital gains tax not applicable at receiving assets. As reported by Pahuja, the heir steps into original investor's shoes, inheriting same cost basis and original holding period counts towards theirs. Capital gains tax applies only when heir eventually decides to sell the holdings. According to tax experts, when you inherit shares from your father, the cost of acquisition of such shares will be deemed to be the cost at which your father had acquired these shares. This cost is commonly known as the 'cost of acquisition' or 'purchase price'. If the purchase value is not known, then the cost of acquisition for the purpose of computing capital gains will be the fair market value (FMV) of the shares as on 31st January 2018. The tax rate for long-term capital gains tax on equity shares is currently 10% (if the gains exceed ₹ 1 lakh in a financial year) without indexation benefit or 20% with indexation benefit. Additionally, income earned after death belongs to legal heirs, not the deceased person, and is taxed accordingly in the heir's name.
The transfer process varies significantly across mutual funds, demat shares, and physical share certificates. For mutual funds, transmission requests must be submitted to asset management company or registrar based on standard documents. Demat shares are transferred through depository participant linked to NSDL or CDSL. Physical share certificates require submission of original certificates along with transmission documents to company's registrar and transfer agent. Pahuja emphasizes that Sebi has been pushing for investors to de-materialise physical shares, making conversion to demat form a crucial financial housekeeping step. The process for transferring holdings after the original investor's death differs across these asset types, with physical certificates being the most cumbersome due to the requirement of original certificates.
