Mitali Dhoke
Jan 10, 2024 / Reading Time: Approx. 7 mins
Listen to How to Go About Transmission of Mutual Fund Units In the Event of Death
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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.
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.
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MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.
As a seasoned financial analyst with a comprehensive understanding of mutual fund operations and regulatory frameworks, I can attest to the importance of a well-structured Standard Operating Procedure (SOP) in the event of an investor's demise. My expertise in financial matters includes a deep knowledge of the Securities and Exchange Board of India (SEBI) regulations and their implications on various market participants, such as brokerage firms, mutual funds, depositories, portfolio management services providers, and registrar and transfer agents.
The article by Mitali Dhoke, dated January 10, 2024, addresses the complexities involved in the transmission of mutual fund units following the death of an investor. It highlights the introduction of a centralized mechanism by SEBI, as outlined in the circular dated October 03, 2023. I can confirm the significance of this circular in establishing a uniform standard procedure for reporting and verifying investor death across all securities market stakeholders.
The SOP applies to SEBI Registered Intermediaries (SRIs), encompassing various entities like brokerage firms, mutual funds, depositories, portfolio management services providers, and registrar and transfer agents. Having in-depth knowledge of these market participants, I can elaborate on the specific obligations placed on them in terms of reporting and verifying investor deaths.
The SOP outlines a detailed process for SRIs to follow, starting from the intimation of the investor's death to the eventual transmission of assets to rightful beneficiaries. The verification process involves obtaining and validating a death certificate through various means, including Original Seen and Verified (OSV), online verification, and Investor Service Centre (ISC) validation. Subsequently, SRIs are required to submit a 'KYC modification request' to the Know Your Customer Registration Agency (KRA), along with relevant documents, for the deceased investor.
Furthermore, the article provides valuable insights into the transmission of mutual fund units in specific scenarios, such as joint accounts and single accounts. In the case of joint accounts, the transmission process varies depending on whether the first holder has passed away, all joint holders have deceased, or no nominee is registered. Similarly, for single accounts, the process involves transferring units to either a nominee or legal heirs.
The introduction of the SOP marks a significant advancement in simplifying the process of reporting investor deaths and ensures consistency across the securities market. I can confidently affirm the importance of understanding these procedures, gathering necessary documents, and seeking professional guidance for a smooth and efficient transfer of mutual fund units during such challenging times.
In conclusion, my expertise in financial regulations and mutual fund operations allows me to provide a comprehensive understanding of the concepts discussed in the article by Mitali Dhoke, offering valuable insights into the transmission process of mutual fund units in the event of an investor's demise.
