Which is better: Single or Joint holding in a mutual fund account?

If you have decided to make a foray into the world of mutual fund investments, there are several important decisions to be made – you must zero down on the product and fund house that you are signing up with, the amount that you wish to invest and the tenure. In addition, there is one more question on every investor’s mind. Should we choose single or joint holdings for mutual funds?

There are several types of holdings that you can consider, and it is important to understand them and then make an informed decision. The mode of holding is important for accessibility, management, and transfer of mutual funds, and selecting the right type ensures that you don’t have any problems in the future.

In Episode 5 of Mint Money Shots, presented by Invesco Mutual Fund, Neil Borate, Deputy Editor at Mint, answers this debate between joint or single holding of mutual funds in detail. Watch the video below,

Single holding

As the name suggests, the single holding means that the mutual fund is in one individual’s name, offering full control of that investment to the owner to buy, sell or manage it. This option is the simplest to manage as it does not require any kind of coordination with others for decision-making. The downside is that the funds may not be easily accessible in case something happens to the owner, and proper succession planning is needed. This can be eased out by adding a nominee to your mutual fund account. The owner of the funds can designate anyone to be the nominee – it does not have to be the legal heir. It can be a family member or a trusted friend. “Note that the nominee and heir are different.A nominee is just a custodian of your property for your legal heir,” Borate explained.

Joint holding

In this case, the investment is owned jointly by more than one person. This option is more suitable for couples or families as both holders have full access to the investment and can carry out transactions, thereby offering greater flexibility. “Note that anyone can be a joint holder, not just your spouse,” he further said. Transactions carried out on joint holdings need signatures from all parties, which could sometimes get tough to effect. It could also lead to potential disagreements over investment decisions, so it is important to have trust and open communication between the holders. The overall investment goals also must be aligned.

Which one should you choose?

The decision to go with a single or joint holding depends upon your individual situation and the overall financial goals.“Generally speaking, a single holding with a nomination is better. This is because joint holding means shared ownership, and there can be legal disputes. Furthermore, many platforms do not enable online transactions for joint holders,” said Borate.

When it comes to taxation, only the first holder has to pay tax if only he/ she is the source of the investment. However, in case of a joint holding, the names of the second/ third holders, along with their PAN details, show up in the Income Tax Annual Information Statement.

However, the decision on whether you want a single holding or a joint one must be made after due consideration. Every investment is unique, and this would depend on the profile of the investors and their goals from the mutual fund investment.

While single holding comes with its benefits, adding another ‘owner’ to the investment comes with its own set of plusses. Talking about the benefits of a joint title, Borate said: “In joint with either/ survivor mode, the second holder can operate without formalities in case the first holder dies or is incapacitated.”

He concluded the video with some golden words of advice. Stressing the importance of nomination, he said: “In any case, make sure you have either joint holding or single plus nomination in place. Death without nomination means costs sometimes are greater than the value of your mutual funds. This is due to the legal charges and costs associated with getting a succession certificate. In such a case, people give up on claiming their inheritance sometimes!”

(Disclaimer: Mint Money Shots is an editorial series, presented in partnership with Invesco Mutual Fund)