Photo: iStock
Photo: iStock

No exit load is charged on transmission of units from a deceased person’s folio

The nominee will need to produce a death certificate for the deceased and prove her identity with an endorsement from her bank

On death of the unit holder, can the nominee get the amount in mutual funds of the deceased person by credit to his bank account? If no, why and if a new folio is to be opened by the nominee, will the applicable exit load be charged while transferring the units or will it be waived in case of death? Also, what will happen to the zero balance folio of the deceased unit holder? Is it closed or will it continue in the books even after his death?

—Nilesh Sathe

On the death of the unit holder, the units in the holding(s) can be transmitted to the nominee. The nominee will need to produce a death certificate for the deceased and prove her identity with an endorsement from her bank. The nominee would also need to fulfil KYC requirements as well (with her PAN card and address proof). Once these steps are completed, the AMC would transmit the units to be in the name of the nominee.

And once the units are in the name of the nominee, she can act on the folio as she wishes. That is, she can redeem these and get the money in her bank account. Unless, of course, the units are in a lock-in period (for a tax-saving fund, for example) or it is a closed-ended fund that still has some investment period left in it.

Other than these situations, all regular open-ended funds can be handled by the new unit holders as they wish to handle it. To answer your second question, no exit load will be charged on transmission of units. And last, zero balance folios in the name of the deceased person will, for all practical purposes, cease to exist. That means, no further investment can be made in that folio. The mutual fund company may choose to keep the folio in the books for regulatory record-keeping.

I’m 24 years old, and my monthly income, excluding all deductions, is around Rs37,500. I earmark Rs2,500 for a recurring deposit that I created when I first started earning. Apart from this, I can save about Rs20,000 every month. My plan is to invest Rs12,500 in Public Provident Fund (PPF) every month and the remaining in fixed deposits. I’ve not tried mutual funds yet because I’m not aware of the risks and rewards. I’m willing to start systematic investment plans (SIPs), but I don’t know how to proceed and which funds to choose? Please advice how to proceed.

—Name withheld on request

Mutual funds provide better alternative for both your current investment choices— bank deposits and PPF. So, it’s not a question of whether you should be investing in mutual funds, but a question of what type of funds you should be investing in.

As a young person, you have a long investment horizon ahead of you but it is also possible that you have some short- to medium-term requirement of funds. For example, if you are looking to use some funds for a wedding in 3 or 4 years, or if you are looking to save for a down payment of a house. If you have such needs, then you should be investing in conservative and relatively low-risk mutual funds. Else, if your goal is to save wealth for the long-term, you should indulge yourself in some risky funds. Either way, you should choose to invest in funds and benefit from the upside that market-linked investments could provide you over the long term.

Presently, you are investing in a recurring deposit of Rs2,500. If you choose to, you can let that continue and let it act as a buffer against market-linked investments. Your investment in PPF can be replaced with investing in tax-saving mutual funds (ELSS funds) that have shorter lock-in period (3 years) and higher potential return. ICICI Prudential Long Term Equity fund is a good choice here. The remaining amount can be invested in, to start with, a couple of balanced funds such as Aditya Birla Sun Life Balanced ’95 fund and L&T India Prudence fund. The risk of investing in mutual funds in general, and in these funds in particular, is that the value can be volatile (move up and down) on a day-to-day basis and can be unsettling to watch. However, if you can stand steadfast and be patient, history has shown that rewards will accrue over time in the form of profits in your investment. And the magnitude of these rewards are quite likely to be over that of any fixed-return product such as bank deposit or PPF.

Srikanth Meenakshi is co-founder and chief operating officer,

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