Mutual funds require investors to add a nominee to their account or opt out of the process. In case of their demise or any other unfortunate circumstance, the nominee can access the investor’s mutual fund investments. Many people may consider putting their child’s name as the nominee, believing that their child will inherit the asset.
However, there is a difference between a nominee and a legal heir. A nominee does not necessarily inherit the assets. Nominees generally act as custodians of a person’s assets after their death.
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The distribution of the assets and investments is subject to the conditions set out in the deceased’s will or the applicable succession laws if there is no will.
The absence of a will can lead to legal hassles if someone decides to contest ownership of the assets after the investor’s death.
Can A Child Be A Nominee For Mutual Fund Investments?
There is no minimum age restriction for naming a nominee for mutual fund investments. Therefore, a child can be appointed as a nominee. This rule also applies to other investment options such as fixed deposits, life insurance and the Employees’ Provident Fund (EPF).
If investors do not wish to appoint a nominee, they can formally opt out by submitting a declaration.
Will The Minor Nominee Receive The Assets?
Even if a minor is nominated, they cannot independently receive or manage the assets. The regulations mandate that a guardian or another designated person will receive the investment proceeds on behalf of the minor.
The guardian will receive the payout and safeguard it until the minor turns 18. The funds can then be transferred to the nominee.
If the child’s parents have passed away or there is no designated guardian, a court would appoint someone to the position.
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If a minor is appointed as the nominee for an investment, the brokerage or financial institution requires the details of the minor and the appointed guardian as part of the Know Your Customer (KYC) process. Proof of the guardian’s relationship with the minor must also be submitted as documentation.
A will can simplify the inheritance process. It can designate the child as a legal heir, making the distribution of assets easier.
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