Home / Money / Personal-finance /  Mutual fund investment: Why naming nominees without thought can get you in trouble later

How many of us invest in mutual funds last minute, especially when meeting our year-end deadlines, and forget to nominate someone? Worse, many people make the mistake of putting down names without giving a thought. Financial planners say they often come across cases where the nominees named may not be the investor’s first choice in the long run. In such cases, your nomination plan can backfire.

In mutual funds, you can either nominate someone close or have a second holder. Mint has consistently advised its readers to nominate someone close as well as have a second holder, preferably in the “anyone or survivor" mode.

Whom to nominate

Writing a clear cut Will is the best way to pass your investments to your loved ones. Your Will supersedes all other mentions of bequeathing, including nominations.

Truly speaking, a nominee is a trustee of your investments. After you die, the nominee is supposed to ensure that your investments pass on to your legal heir. If there is no legal heir and no Will in place, then your nominee may claim a right to your investments. Either ways, it’s essential that your nominee is a person of around your age or younger than you.

You can update your nominees in future. In fact, it makes sense to keep a check on who your nominees at least once in two to three years. Keeping a check is also beneficial if you nominate, say, your daughter. Typically, in India, daughters change their last names after marriage. If this happens, you need to change your daughter’s name in your investments. Make sure the spellings of your nominees are correct; wrong spellings can leave your investments in a limbo after you’re gone. You can nominate your minor children as well, but then there needs to be a guardian. Ensure the guardian’s age is such that she would be around when your child turns a major.

Many singles face the dilemma of whom to nominate. If they choose a second holder, say either a parent or a sibling, then their signatures are necessary at the start. But if they nominate, just their signature works. But as we said earlier, a joint holder is a successor; nominee is merely a trustee. Either ways, it’s best to have a Will in place.

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