TRANSMISSION OF MUTUAL FUNDS

The process of Transmission of Mutual Fund Units refers to the formal process through which an investor's holdings in mutual funds are transferred to their legal heir(s) or beneficiaries upon the investor's death. This process is particularly important in ensuring that the assets are managed in accordance with the wishes of the deceased and that the rightful heirs can access and manage those investments.

The transmission of mutual fund units is necessary upon the death of the unit holder. This process can be straightforward, provided all required documents are ready. If the unit holder has investments in multiple fund houses, requests must be submitted to each one individually.

Here's a more detailed breakdown of the process:

1. Understanding the Need for Transmission

Continuity in Ownership: When a mutual fund investor passes away, their investments need to be transferred to beneficiaries/nominees or legal heirs to ensure the continuity of ownership.

Legal Validity: Transmission ensures that the transfer is legally valid and that the new owners have the right to manage the investments.

2. Required Documentation

In order to process the transmission of mutual fund units, several documents are typically required:

Death Certificate: An official death certificate to prove the investor's death.

Proof of Identity and Address of Heirs: Identification and residency proof of the legal heirs or beneficiaries.

Succession Certificate: In some cases, a legal document that identifies the rightful heirs may be required, especially if there are disputes.

KYC Documents: Know Your Customer (KYC) documentation for the heirs may also be needed to ensure compliance with regulations.

3. Initiating the Transmission Process

Contacting the Mutual Fund House: The heirs or legal representatives should first reach out to the mutual fund company or the registrar and transfer agent (RTA).

Filling Out Forms: The necessary forms for transmission will need to be completed. This might include a specific transmission request form, which provides details about the deceased and the beneficiaries.

4. Verification Process

Scrutiny of Documents: The mutual fund house will verify all submitted documents to ensure their authenticity.

Legal Clarification: If there are multiple potential heirs, the fund company may require additional legal documents to clarify and resolve the rightful ownership.

5. Transfer of Units

Completion of Transfer: Once all documents are verified and deemed satisfactory, the mutual fund units are transferred to the legal heirs' accounts.

Communication: The fund house typically communicates the successful transfer to the heirs, providing details of the new holdings.

6. Tax Implications

Capital Gains Tax: The transmission process is typically not taxable as it is deemed a transfer of ownership rather than a sale. However, when the heirs subsequently sell the units, they may need to consider any capital gains tax based on the original purchase price.

7. Updating Records

KYC Update: After transmission, the KYC details of the new owners should be updated to reflect their ownership status clearly.

Future Management of Units: The new owners can then make decisions regarding their investments, including holding, selling, or redeeming the units in the future.

8. Crucial Details About The Transmission Process

Pattern of Holding:

• Units can be held either in a single name with a nominee or jointly by up to three holders.
• The mode of operation could be “either or survivor” or on a joint basis.
• If there are two or three holders, in the event of the death of the first unit holder, the units can be transmitted to the second and third unit holders.
• In case of a single holder, the units can be transmitted to the nominee.
• The second holder or nominee needs to submit a letter to the fund house along with the original death certificate or notarized death certificate. Bank account details must also be provided.
• If the nominee is not KYC-compliant, they need to complete the KYC process.
• The nominee can choose to hold onto the units or sell them after transmission.

No Nominee or Multiple Nominees:

• If there are no joint holders or nominees, the investments will be transferred to the legal heirs of the deceased
• In case of multiple nominees, each nominee receives a portion of the fund units according to the intent of the deceased investor.
• If the transmission amount is up to ₹ 5 lakh, attestation of the signature of the claimant by bank manager ( banker attestation) is required. In case the claimant is a minor, the signature of the guardian (as per the minor’s bank account / minors joint account with the guardian) shall be attested.
• If the transmission amount is for more than ₹ 5 lakh, the signature of the claimant shall be attested by a Notary Public or a JMFC in the space provided for signature attestation in the TRF itself below the signature of the claimant.

Processing Time:

• The process can be completed fairly smoothly if the documents are in order.
• Fund houses typically take 5-15 working days to complete the transmission.

Demat Form:

• For investors who buy mutual fund units in demat form, the units will be transmitted to the surviving holder in case of the death of one of the joint holders.
• Required documents include a death certificate and an account closing form.
• The new account where the mutual fund units need to be transmitted must be in the same sequence as the surviving holder.

FAQ

What happens if there is no nominee?

If there is no nominee mentioned for mutual fund investments, the process of transmission becomes slightly more complex. Here's what typically happens:

1. Legal Heirs:

In the absence of a nominee, the mutual fund units are transmitted to the legal heirs of the deceased investor.

Legal heirs include the spouse, children, parents, or other close relatives as per the applicable laws of inheritance.

2. Documentation:

The legal heirs need to provide necessary documents, including the original death certificate, proof of relationship with the deceased (such as birth certificates), and an affidavit stating their claim to the investment.

If the investment value exceeds a certain threshold (usually Rs 2 lakh), the documents may need to be attested by a notary.

3. Processing Time:

The transmission process can take longer in this case due to the additional documentation required.

Fund houses typically take 15-30 working days to complete the transmission to legal heirs.

4. Distribution Among Heirs:

The mutual fund units are distributed among the legal heirs based on the intestate succession laws applicable in the investor's religion or region.

Each heir receives a portion of the units as per their share in the inheritance.

Remember that the specific process may vary slightly depending on the mutual fund company and the legal requirements in your region. It's advisable to consult with the fund house or a legal advisor for precise guidance in such situations.

If no nominee is designated for mutual fund investments, the transmission process becomes more intricate. Here’s an overview:

1. Legal Heirs:

Without a nominee, mutual fund units are transferred to the deceased investor’s legal heirs.

Legal heirs include the spouse, children, parents, or other close relatives based on inheritance laws.

2. Documentation:

Legal heirs must provide: the original death certificate, proof of relationship (e.g., birth certificates), and an affidavit claiming the investment.

If the investment exceeds a certain value (typically Rs 2 lakh), documents may need notarization.

3. Processing Time:

The process may be longer due to the additional paperwork.

Fund houses generally take 15-30 working days to complete the transmission.

4. Distribution:

Units are distributed among legal heirs according to intestate succession laws relevant to the investor’s religion or region.

Each heir receives a share of the units based on their inheritance entitlement.

The specific process can vary by mutual fund company and regional legal requirements. For precise guidance, consult the fund house or a legal advisor.

How can I add a nominee to my mutual fund investments?

Adding a nominee to your mutual fund investments is a crucial step for financial security. Here’s how you can do it:

1. Nomination Form:

• Obtain a nomination form from your mutual fund company or registrar’s office.
• Fill in accurate details, including the nominee’s name, address, and relationship with you.

2. Witness and Sign:

• The form usually requires your signature in the presence of witnesses.
• Ensure that the witnesses sign as well.

3. Submit the Form:

• Submit the filled nomination form to the Mutual Fund company or the registrar’s office.
• They will update your account with the nominee’s information.

What happens if the nominee predeceases me?

If the nominee predeceases you, the following scenarios may apply:

1. Alternate Nominee

• If you have specified an alternate nominee in your mutual fund account, the units will be transmitted to the alternate nominee.
• The alternate nominee is typically mentioned in the same nomination form.

2. Legal Heirs:

• In the absence of an alternate nominee, the mutual fund units will be transmitted to your legal heirs.
• Legal heirs include your spouse, children, parents, or other close relatives as per the applicable laws of inheritance.

3. Documentation:

• The legal heirs need to provide necessary documents, including the original death certificate, proof of relationship with you (such as birth certificates), and an affidavit stating their claim to the investment.
• If the investment value exceeds a certain threshold (usually 5 lakh), the documents may need to be attested by a notary.

4. Distribution Among Heirs:

• The mutual fund units are distributed among the legal heirs based on the intestate succession laws applicable in your religion or region.
• Each heir receives a portion of the units as per their share in the inheritance.

Remember to keep your nomination details updated and review them periodically to ensure they reflect your current preferences and circumstances. If you have any specific concerns, consult with a legal advisor or the mutual fund company for personalized guidance.

What are the tax implications of transmission of mutual funds?

This process called transmission is not subject to any tax.

However, when you redeem the transmitted units, you may be liable to pay taxes, just like any other mutual fund investment. The gain from redemption becomes taxable if you redeem the units after the 15-day cooling period following transmission.

Remember to consult a tax professional or the mutual fund company for personalized guidance based on your specific situation.

What is the 15-day cooling period?

The 15-day cooling period refers to the time frame after the transmission of mutual fund units during which any redemption of those units is not subject to Capital Gains Tax. During this period, you can redeem the units without incurring tax liability. However, if you redeem the units after this cooling-off period, any capital gains will be taxable as per the applicable tax rules.

Can I gift a mutual fund to someone?

No, you cannot directly transfer or gift a mutual fund scheme to another person. The only exception is if you are a legal guardian investing on behalf of a minor.

Can I transfer mutual fund units to another person?

Mutual fund units can only be transferred through inheritance or by selling the units on the open market. The prospective buyer would then acquire them at the prevailing market price.