How to Go About Transmission of Mutual Fund Units In the Event of Death

January 11, 2024 Mutual Fund

The loss of a loved one is never easy, and the intricacies of financial matters can add a layer of complexity during this already difficult time.

Reporting the demise of an investor involves a bit of a hassle between notifying relevant parties, upholding legal obligations, and ensuring smooth asset transmission. To navigate this sensitive process with clarity and efficiency, understanding the Common Standard Operating Procedure (SOP) for reporting investor death is crucial.

This article will walk you through the process, demystifying the legal requirements and steps necessary to seamlessly transfer mutual fund units to rightful beneficiaries.

In order to streamline the transmission process in the securities market, SEBI released guidelines for a centralised mechanism for reporting and verification in the event of an investor’s demise after consulting with a number of stakeholders.

Last year, SEBI issued a circular dated October 03, 2023, which stated, “It has been decided to introduce a centralized mechanism for reporting and verification in case of the demise of an investor and thereby smoothen the process of transmission in securities market.”

This circular spell out the operational norms including the obligations of regulated entities, including registered intermediaries that have interface with ‘investors’ / ‘account holders’ (used interchangeably) who are natural persons

The objective of this circular is to have uniform standard procedures across all securities market stakeholders.

This SOP applies to all SEBI Registered Intermediaries (SRIs), including:

• Brokerage firms
• Mutual funds
• Depositories
• Portfolio management services providers
• Registrar and transfer agents

Essentially, any entity that interacts with individual investors in the Indian securities market falls under the purview of this SOP.

How does the Standard Operating Procedure (SOP) work?

The SOP outlines a step-by-step process for SRIs to follow upon receiving information about an investor’s demise:

• Intimation:– The death can be reported by various stakeholders – joint account holders, nominees, legal representatives, or family members.- SRIs must maintain a documented record of the source of information and date of notification.
• Verification:– The SRI needs to obtain and verify a death certificate. Options include:Original Seen and Verified (OSV) – Examining the physical death certificate and comparing it with the investor’s PAN.Online Verification – Using reliable online sources like e-Fass portal or state government websites.Investor Service Centre (ISC) Validation – Utilising verification services offered by authorised ISCs at stock exchanges or depositories.
• Documentation and Reporting:– Upon verification, the SRI must submit a ‘KYC modification request’ to the KRA, indicating the investor’s deceased status and uploading relevant documents.- These documents typically include the verified death certificate, validation report (if applicable), and notifier’s credentials.
• Transaction Restrictions:– To prevent unauthorised activity, the SRI must immediately freeze all debit transactions in the deceased investor’s accounts.- Credit transactions, like interest or dividend payments, may continue until further instructions are received from legal heirs.
• Transmission of Assets:– The legal heirs will need to initiate the transmission of the deceased investor’s assets. This process varies depending on the type of asset and may involve submitting specific documentation.- SRIs are obliged to provide necessary guidance and support to facilitate the smooth transfer of assets.

With effect from January 01, 2024, when a nominee reaches out to a mutual fund company or a registrar to report the demise of an investor, it will get updated across all fund houses. There will be no need to reach out to another RTA or AMCs to update the demise of an investor.

Overall Process Flow for transmission of MF units in case of death of the investor.

(Source: AMFI- Common SOP) 

When it comes to the transmission of mutual fund units in the event of the demise of the investor, the very first step is to get a Death Certificate and make multiple copies.

A death certificate is the most important document to claim for any settlement, transfer of assets, account closure, and so on. So, keep multiple copies of the death certificate and get the copies attested.

Also, ensure that the name is spelled correctly and is as per the official documents such as the PAN card, Aadhaar, and so on. If there is a discrepancy, it could take more than a month to sort out the name change issue, which might add to the stressful situation.

In order to understand the documentation and steps involved in SOP for reporting the demise of an investor through KRAs detail, have a look at the AMFI – Common SOP for implementation of SEBI circular on Centralised mechanism for reporting the demise of an investor through KRAs.

PersonalFN has listed down the procedure that can help you to transmit mutual fund units in the following different scenarios.

1. Transmission of Mutual Fund Units in Case of Joint Accounts

If investments have been made through a joint account, there can be up to 3 joint holders, and there are 3 possible types of claims that can occur:

• After the death of the first holder, the investments can be transferred to survivors of the joint account.

Documents Required:

A letter informing about the death of the first unit holder (in the format required by the fund house). Copy of the death certificate attested by the bank manager/gazette officer/asset management company. The second unit holder’s bank details (as specified by the fund house) and KYC of the second holder.

• In the case of the demise of all joint holders, the investments can be transferred to the nominee.

Documents Required:

A letter (in the format required by the fund house), an attested copy of the deceased’s death certificate, Bank details (as specified by the fund house), and KYC of the nominee.

• In the case of the death of all joint holders and if no nominee is registered, the investments will be transferred to the legal heirs.

Documents Required:

Individual affidavits from the legal heir(s) (in the required format), Indemnity bond from the legal heir(s) (in the required format). If the amount to be transmitted is below the threshold limit set by the AMC, then any appropriate documents must be provided proving the relationship of the claimant with the deceased.

If the amount to be transmitted is equal to or greater than the threshold limit set by the AMC, then any one of these are required to be submitted – Notarised copy of the Probated Will, or Legal Heir Certificate or Succession Certificate or Claimant’s Certificate issued by a competent court, or Letter of Administration, in case of Intestate Succession.

2. Transmission of Mutual Fund Units in Case of Single Accounts

If investments have been made using a sole/single account, the investments can be transferred to two types of claimants:

• If a nominee is registered, Mutual Fund units can be transferred to the nominee;
• In the absence of a nominee, the investments can be transferred to the legal heirs.

However, if there are multiple nominees or legal heirs, the investments of the deceased investor will be divided between the eligible claimants at the time of the transfer. If multiple nominees have been registered, the investments will be divided as per the percentage share specified in the nomination documents submitted by the deceased investor.

When multiple legal heirs submit a joint claim for the transfer of mutual fund units, the investments are divided based on instructions provided in the probated will. All legal heirs are entitled to get an equal share of the deceased investor’s mutual fund units in the absence of a valid will.

[Read: Looking for High Return Mutual Funds? Here’s How One Should Approach Investment in Mutual Funds]

To conclude…

Note that procedures for the transmission of mutual fund units may differ slightly from fund house to fund house. By carefully understanding the transmission process, gathering the necessary documents, and seeking professional guidance when needed, you can ensure a smooth and efficient transfer of mutual fund units.

The introduction of the SOP marks a significant step forward in streamlining the process of reporting investor death. Continued collaboration between SEBI, market participants, and technology providers will further enhance the efficiency and transparency of this sensitive procedure.

This article first appeared on PersonalFN here