Consider a client who passes away unexpectedly, leaving behind a significant portfolio in a Liquid Fund and an ELSS, but having never filed a nomination form. As an MFD, you will find that the operational procedure for transmitting these units to the legal heirs is far more exhaustive than when a nominee is on record.
In the absence of a nominee, the Asset Management Company requires proof of the legal right to claim the assets, which essentially shifts the burden from simple administrative verification to a formal legal process of establishing succession.
Without a nominee, the legal heirs must provide a suite of documents, typically including a notarized indemnity bond, an affidavit, and a succession certificate or a probate of the will issued by a competent court of law. This is where the difference between a minor and a major investment, or the presence of a surviving joint holder, creates distinct operational paths.
If the portfolio was held solely, the AMC cannot simply release the funds; they must act as custodians until the claimant demonstrates clear legal entitlement, often involving a time-consuming verification of the deceased’s entire estate.
For an MFD, this situation is a stark reminder of why we emphasize the ’nomination-first’ approach during the onboarding process. When you facilitate a regular plan investment, your value lies not just in selecting a fund with consistent alpha or managing drawdown risks in a Balanced Advantage category, but in ensuring these administrative ’time bombs’ are defused. If you leave a client’s portfolio un-nominated, you are essentially exposing their future beneficiaries to legal gridlock that could freeze assets worth lakhs for years.
In practical terms, the absence of a nominee forces the heirs to prove their relationship and their legal status as claimants. This involves gathering signatures from all other potential heirs to avoid future litigation, a process that can be emotionally and financially draining for a grieving family. By prioritizing the update of nomination details—even for long-standing folios—you move from being a mere distributor of products to a genuine steward of the client’s long-term financial security.
Always remember that while a nominee is an administrative convenience for the AMC, the absence of one turns a simple operational task into a potential legal battleground.
Nuance
Check Your Understanding
An investor passes away leaving a sole-held folio with no nomination. To transmit the units, which of the following is typically required by the AMC to establish the legal right of the claimants?
If an investor holds units jointly and the first holder passes away without a nominee, how are the units transmitted?
This is a companion read for Section 9.13 — Non-Financial Transactions in Mutual Funds from Ace the NISM Mutual Fund Distributors Exam by Akhilesh Gururani, available on Amazon Kindle.
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