What happens to mutual funds in the event of an investor’s death?

Mutual funds have grown in popularity among many Indian investors in recent years, with even MF life insurance finding favor among a section of investors. Investments in mutual funds are generally to build wealth, either to buy something, fund education or vacation goals or to just build a secure future for family.

However, life is filled with uncertainties and no amount of planning can brace you or your family in the inevitable event of death. It is, thus, essential to know the procedure in the sudden event of the investor being no more.

Transmission of units

It is the process of transferring units of the deceased investor either to their nominee, legal heirs, or the surviving joint unitholders.

MF units can be held either individually or jointly (up to three joint holders). Depending upon the mode of holding, the necessary documents need to be submitted along with the request for transmission.

Following are the scenarios when the transmission of units can happen.

  1. Death of one of the joint unit holders

If the MF security is held jointly, it passes on to the next holder on the death of the first unit holder. In the case of two surviving joint holders, the second holder will be the new first holder.

  1. Death of individual or all unit holders, where a nominee is registered

The MF units will be transmitted to the registered nominee if there is no surviving investor.

  1. Death of sole or all unit holders, where the nominee is not registered

If the investor dies without nominating anyone, the legal heir of the deceased can claim the investment after furnishing the required documents.

Documents required for transmission of units

  1. Original death certificate of the deceased investor or notarized copy of the same
  1. An application letter from the claimant/surviving unit holders requesting transmission of units
  1. A bank document, such as a photocopy of a passbook or latest account statement, to establish the claimant’s name, address, account number and IFSC. The document needs to be attested by the concerned bank manager
  1. The KYC (Know Your Customer) document of the claimant
  1. The Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS) documents, if applicable, of the claimant

In the absence of a registered nominee, the legal heir has to provide the following documents along with the documents previously mentioned.

  1. Indemnity bond and individual affidavits from all the legal heirs
  1. If the transmission amount is greater than Rs 2 lakhs, any one of the following documents is needed –
  1. A copy of the probated will, which is duly signed and authorized by the notary
  • A succession certificate issued by the court of law
  • Letter of administration for intestate succession

Documents required if the claimant is a minor

  1. Birth certificate of the minor
  1. Guardian’s identity proof
  1. Proof of the guardian-minor relationship

Allotment of units

The units can be allotted within 30 to 45 days of document submission. No tax is applicable on the transmission of units unless the claimant redeems the units.

In conclusion

Proper nomination in a mutual fund policy can save a significant amount of time and effort in case of the death of the investor.

No one can fill the void created by the death of a loved one. However, proper knowledge and awareness could help you redeem the units of a deceased person and honor the mutual fund investments made by a loved one.