As an Investor, you've meticulously built a portfolio of mutual funds throughout your lifetime. But have you considered what happens to these investments after you've passed away? Understanding the transmission process, the legal steps involved, and the documents required can ensure a smooth transition of your mutual fund holdings to your beneficiaries.
What is Transmission?
Transmission refers to the legal process of transferring ownership of mutual fund units from a deceased investor (unit holder) to their rightful inheritors. The individual inheriting these units can be the second holder, the nominee registered in the folio, or the legal heir. This ensures your hard-earned savings reach the intended recipients without unnecessary delays or complications.
Who Can Claim the Mutual Funds?
The person entitled to claim your mutual fund benefits depends on how your account is held:
Joint Accounts: If you hold the account jointly with another person (typically a spouse or a parent), upon your demise, the surviving joint holder automatically becomes the sole owner of the units. This simplifies the process, but remember, the full value of the investment becomes part of the surviving joint holder's estate for tax purposes.
Sole Accounts with Nominee: A nominee is an individual you designate to inherit your mutual fund holdings upon your death. Nomination is a straightforward process that can be done online or through a physical form submitted to the Asset Management Company (AMC). The nominee inherits the units directly, expediting the claim process and bypassing legal complexities. However, the nominee should be someone you trust completely, as they will have full legal ownership of the units.
Legal Heirs (Sole Accounts without Nominee): In the absence of a nominee or a joint holder, the legal heirs inherit the mutual fund units. Legal heirs are typically determined by a will or, in its absence, by the intestate succession laws applicable to your religion or community in India. This process can be more time-consuming and involve legal formalities, potentially leading to delays in receiving the benefits.
Claims and Types of Accounts
Here's a breakdown of the claiming process for different account types:
Joint Accounts
Ownership Transfer upon Death: When one account holder passes away, the remaining holders become the sole owners of the investments, and the investments get transferred to them.
Nominee for Deceased Joint Holders: If all joint holders pass away and a nominee is named on the account, the nominee can claim the investments.
Legal Heirs for Deceased Joint Holders without Nominee: In the absence of a nominee and if all joint holders pass away, the legal heirs are entitled to the investments.
Sole Accounts
There are two main ways ownership of investments in a sole account is transferred after the investor's death:
With a Nominee: If you've designated a nominee, the mutual fund units will be transferred to them.
Without a Nominee: In the absence of a nominee, the legal heirs will inherit the investments.
Sharing Among Multiple Claimants:
Multiple Nominees: If you've registered multiple nominees, the investment will be divided among them based on the percentage share you specified in the nomination form.
Multiple Legal Heirs
With a Will: If you have a valid will, the investments will be distributed according to your wishes outlined in the document.
Without a Will: In the absence of a will, all legal heirs will receive an equal share of the mutual fund units.
How to Claim Mutual Fund After The Death of The Invest: Documents Required for Transmission
To ensure a smooth transmission process, ensure you have the following documents readily available:
For Joint Holder or Nominee:
Notorized copy of Death certificate of the deceased investor
KYC documents of the claimant (proof of identity and address) - Aadhaar card, PAN card, etc.
Transmission request form from the AMC (can be downloaded from their website)
Bank account details of the claimant for receiving the proceeds (cancelled cheque or bank statement)
For Legal Heirs
Notorized copy of Death certificate of the deceased investor
KYC documents of the claimant (proof of identity and address) - Aadhaar card, PAN card, etc.
Transmission request form from the AMC (can be downloaded from their website)
Bank account details of the claimant for receiving the proceeds (cancelled cheque or bank statement)
Copy of Succession certificate or notorized copy of probate of the will (if a will exists).
Individual Affidavits by the legal heirs: An affidavit is a sworn written statement from each legal heir that confirms their identity and right to inherit the mutual fund units. It essentially declares they are who they say they are and entitled to receive the investment.
Indemnity Bonds signed by the legal heirs: An indemnity bond is a legal document signed by the legal heirs. It serves as a guarantee that they will compensate the AMC (Asset Management Company) for any potential losses arising from processing their claim. This could happen if another legal heir emerges later or there are disputes about inheritance rights. By signing the bond, the legal heirs take responsibility for any such issues.
Tax Considerations During Transmission
There are tax implications to consider during the transmission process:
Capital Gains Tax: You only pay capital gains tax on mutual funds when you sell or redeem your units. Inheriting mutual fund units doesn't involve selling or redeeming them, so there's no capital gains tax for the recipient (joint holder, nominee, or legal heir) at the time of inheritance.
However, it's important to note that capital gains tax may apply if the recipient sells the units later. The taxable amount will depend on the difference between the purchase price (which may be adjusted to the market value on the date of the investor's death for legal heirs) and the selling price.
Dividend Distribution Tax (DDT): This tax was applicable on dividends received from equity-oriented mutual funds in India. However, the DDT was abolished in Budget 2020. So, dividends received by the recipient after inheriting the units won't be subject to DDT, but will be taxed as per your respective income tax slab rates.
Note: It's always advisable to consult a tax advisor for personalised guidance on tax implications specific to your situation.
Conclusion
By taking proactive steps you can claim mutual fund after the death of the investor by nominating a trustworthy individual and ensuring proper documentation is in place, you can significantly simplify the claim process for your beneficiaries. Remember, clear communication with your family about your investment holdings and the nomination details can further ease the transition during a difficult time. For personalised guidance tailored to your situation, consider consulting with your financial counsellor.
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