SEBI issues new framework to ease mutual fund transmission after an investor's death

Anyone who invests in mutual funds, or has a family member who does, should know in whose name the units will be held after the investor's death. SEBI has issued a new framework for mutual fund transmission that makes the process considerably easier than before.

Earlier, claims were rejected even for small and minor errors by the nominee. There was also a fixed time limit for filing a claim. The new rules fall into three categories, each with its own arrangement.

The first category is joint holdings. If a husband and wife have invested together in a mutual fund and one holder dies, the process is straightforward for the surviving holder. Under the new rules, the asset management company (AMC) no longer needs to repeatedly ask the surviving joint holder for papers such as KYC, an indemnity bond or an undertaking. On submission of the deceased holder's death certificate alone, the entire account is transferred to the other holder.

In the second category, the fund is in a single person's name but a nominee is already recorded in the papers. In such cases, the nominee can apply for transfer to the AMC or the registrar and transfer agent (RTA). This requires a transfer request form, a verifiable death certificate and an account statement of the holdings.

It should be understood that being a nominee does not make that person the legal owner of the fund. Under SEBI's new framework, the nominee receives the assets as a trustee on behalf of the deceased investor's legal heirs. The AMC's transfer of units to the nominee discharges its responsibility, but who the real owner is gets decided according to succession law.

The third category is the most complicated: the fund is in a single person's name and no nominee is registered. As the investor has given no details of a nominated person, it is very difficult to decide who gets the money from among the spouse, children or parents. The claimant then has to prove that they are the legal heir of the deceased. SEBI has set different routes depending on the size of the claim.

Small claims of up to Rs 10,000, for the statement of account (SOA) mode, go through the Quick Transmission Processing (QTP) route. This route is meant for close relatives such as parents, spouse and children. It requires a transfer-cum-undertaking, a death certificate and proof of relationship.

Claims between Rs 10,000 and Rs 10 lakh fall under simplified documentation. Along with the basic papers, a notarised indemnity bond and a notarised affidavit or no-objection certificate from the legal heirs may be required.

Claims above Rs 10 lakh may require firmer documents, such as an indemnity bond along with a will, a legal heir certificate or a succession certificate. Probate of the will is not required in every case.

If the mutual fund units are held in a demat account, these limits change. For demat accounts, the QTP limit is up to Rs 30,000 and the limit for simplified documentation is up to Rs 30 lakh.

There are some other changes as well. It is no longer necessary to carry the original death certificate everywhere, as SEBI has also accepted verifiable death certificates carrying a QR code. After all required documents are received, the AMC must complete work on a transmission claim within 21 calendar days. A written reason must be given for any delay or rejection of a claim. As soon as a claim is submitted, the processing entity must immediately issue an acknowledgement and flag any irregularity at the outset.