Nomination - an ignored but important aspect of financial planning

Do you know how much money is lying unclaimed in banks or with mutual fund companies for more than 5 years? According to reports, as on end 2018, ₹5500 crores were lying unclaimed in scheduled banks and around ₹45,000 crores with mutual funds. One of the primary reason for this huge unclaimed amount is ‘no nomination’ registered in the accounts/ investments of these holders.

Every time we invest or open an account, we are in a hurry to complete the documentation as we find it cumbersome. Most of us leave it to the advisor or our ‘Relationship Manager’ to fill up the form and ignoring to fill up the nomination details. Many times, we think that this will be filled up later and there is no urgency for the same. It may not seem important at the time of investment but the importance of this comes to the fore in event of an untimely event which can happen anytime and with anyone. In the absence of the nomination, the next of kin will have run helter-skelter to claim the assets.

It is always a good practice to ensure that the moment you create an asset, you state your nominee. These assets could be bank account, mutual fund, demat account, fixed deposits, PPF account etc.

What does nomination mean?

Nomination is the right conferred on the asset holder to appoint one or more persons (called nominees) who will be entitled to receive the assets upon his death. The nominee becomes the custodian of the assets i.e. asset will be transferred to him/her in the event of the death of the holder of the asset.

There is a misconception that nominee is the ultimate beneficiary of the assets transferred to him. As per legal position, the nominee is only a trustee/ custodian of the assets and is legally bound to transfer to the real owners i.e. the legal heirs of the deceased person. A ‘Will’ would normally over-ride the nomination in the court of law. However, as far as financial institutions are concerned, it will transfer the assets to the registered nominee(s) in the event of death and discharge themselves from their liabilities.

Hence the nomination has to be a well thought out action and not a random one. You should try to nominate the same person(s) whom you would like to bequeath your assets to in your Will. In other words, your nominations should be aligned with the Will.

There could be 4 scenarios in real life:

Scenario 1 - There is a Will left by the deceased but no nominations in the assets. In this case, the heirs have to make claim on the financial institutions as per the Will. The financial institutions are little cautious in transferring the assets and would want you to prove that Will is genuine. Some may also ask for probate of the Will. They will also take more time to process to ensure that there are no other claimants coming up.

Scenario 2 - There are nominations in the assets but no Will. In this case, the financial institutions will transfer the assets to the nominee(s) on submission of documents like death certificate and discharge themselves from their liabilities. However, any legal heir who is not a nominee or his share in the assets is not adequate can go to the courts and it will be binding on the nominee to transfer the share of other legal heirs as per court order. This could be a long drawn process and lead to lot of acrimony in the family relationships.

Scenario 3 - There are no nominations & no Will. In this case the legal heirs will have to obtain ‘Succession Certificate’ & ‘Heirship Certificate’ from local authorities which is a very time consuming and cumbersome process. It also involves lot of monetary outgo in terms of fees to authorities and legal expenses to lawyers. The whole process takes years to get completed.

Scenario 4 - There is a Will and there are nominations aligned to the Will. This is the best case. In this case, the financial institutions will transfer the assets to the nominee(s) and a very less chance of any legal heir going to court since the Will is there.

Hence everyone should prepare his/her Will and also do the nominations in all the assets he purchases/creates.

Nomination process for some of the financial assets:

Life Insurance: In 2015, the concept of ‘beneficial nominee’ was introduced in Life Insurance policies in India. The beneficial nominees can only be close relatives of the policy holder i.e. father, mother, spouse or children. A minor can also be appointed as beneficial nominee but under guardianship. The option of changing the nominee during the tenure of the policy is always possible. One can have multiple nominees also specifying the share for each nominee.

Mutual Funds: One can nominate upto 3 persons as nominees with share for each nominee specified. Here, the nominee need not necessarily be the close relative. However, to avoid any hassles later for the legal heirs, it would be advisable to nominate as per your Will. The nominations are at folio level (and not scheme level), hence the same nominations are applicable to all the funds/ schemes under the same folio.

Demat Account: Here also, one can nominate upto 3 persons as nominees with share of each nominee specified. The nominee need not necessarily be close relative, but it is advisable to nominate as per your Will. The option of changing the nomination any number of times is always available.

Bank Accounts: For bank accounts (including fixed deposits in banks), only one nominee is allowed for each account/FDR. However, if you have multiple accounts/ FDs with the bank, you can have separate nominees for each account.

PPF Account: PPF allows you to nominate more than one person. The share of each nominee has to be specified. Here again, the nominees need not be close relatives, but it is advisable to nominate in line with your Will.

Similarly, you can do nomination for your apartment in a cooperative housing society, company fixed deposits, safe deposit lockers etc.


Ensure the following important things for all your investments so that your family members do not have to face hardships in getting the assets transferred in their name in the event of the unfortunate incident.

Ensure proper nomination for all your assets and aligned to your Will.
Ensure joint holding for all investment with ‘Either or Survivor’ option. This will facilitate redemption etc by single signature yet retains the ownership as joint.
Last but not the least - Do make your WILL. You are never too young or too old to do that!

Author:  Arvinderjit Singh, Managing Partner at Finance First Advisers