Do you have a nominee for your investments? Here’s why it is important.

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There are so many reasons to invest, aren’t there? Some people invest so they can preserve their capital. Others invest so they can watch their capital grow. Yet others invest so their children can have a better life than they did. Whatever the reason behind an investment may be, there’s one underlying factor that is both essential and common to all of them.

And that is assigning a nominee.

Think about it. Despite our best plans, life can throw something completely unexpected in our path. And if something unforeseen were to occur to you, what happens to all your carefully planned investments? Logically, you know that they will be passed on to your spouse or your children, as the case may be. But in real life, it may not be that easy if you don’t have a clear nomination in place.

Wonder why that is, and want to know more about the details involved here? Let’s begin at the basics then.

Who is a nominee?

A nominee is the individual who will receive the investment proceeds in case of the investor’s demise. In other words, the nominee will be the recipient or the beneficiary of the investments, assets and other funds.

Given the nature of this position, a nominee will ideally have to be a family member who is close to you, like your spouse, your children, or your parents. In some rare cases, when people do not have any close family members to appoint as beneficiaries, they may assign the position of a nominee to someone else.

What is the meaning of nomination?

Nomination is the process of appointing a beneficiary for your investments and for the proceeds from those assets. These investments and funds will be passed on to the nominee in case of the investor’s demise.

You can appoint any of the following people as your nominee, depending on the investment for which you are making the nomination.

  • Your spouse
  • Your parents
  • Your sibling
  • Any other family member
  • Your friend
  • Any other individual, including a minor

In case your nominee is a minor, you will also have to provide the details of the minor’s guardian, like their name, address and contact information.

Why is nomination important?

Nomination is important for one key reason. In the case of a person’s demise, it makes the process of transferring their investments to their nominee smoother. If no nomination has been made, the legal heirs of the person will have to go through a longer process in order to acquire the assets and investments.

Without a nomination, legal heirs will also have to produce other paperwork, like a legal will, a legal heir certificate and other documents. All of this could delay the process of obtaining the assets and investments, and this could cause significant financial strain for the surviving family members.

On the other hand, if the investments in question already have a nominee in place, the beneficiary will only have to provide their ID and address proofs and their bank account details to get the investments transferred. Simple, isn’t it?

What are the investments for which you can assign a nominee?

Nominations are typically a part of most investments. Here’s an illustrative list of the different kinds of common investments for which you can assign a nominee.

  • Life insurance policies:

    Nomination forms the core of life insurance policies, because the whole point of insurance is to make sure your family members are financially well-protected in your absence.

  • Bank accounts:

    You can also appoint a nominee for your bank accounts. The nominee will receive the amount in your account, in case of the account holder's demise.

  • Bank fixed deposits:

    Just like bank accounts, bank FDs also come with a nomination facility. The nominee will be entitled to the interest and the principal amounts in the fixed deposit.

  • Public Provident Fund:

    PPF is a long-term investment option. And like most investments, it also comes with a nomination feature. You can take care of the nomination process at the time of opening your account itself.

  • Mutual fund investments:

    Nomination for mutual fund investments is also important, because it makes the process of transferring the investments easier for the nominee.

Do you have to make a nomination for all your investments?

Interestingly, nomination is not mandatory. However, it is undoubtedly essential, because nomination ensures that your family members do not go through any long-winded procedures unnecessarily.

Nevertheless, the ultimate choice of having a nominee - or not having one - depends on you, the investor. If you decide not to appoint anyone as your nominee, you are free to do so. You may have to indicate this information at the time of making your investment.

How many nominees can you appoint?

The exact upper limit for this varies from one investment to another. Let’s take up the same investment options we saw above, and find out how many nominees they each allow.

  • Life insurance policies:

    You can make multiple nominations for your life insurance policy.

  • Bank accounts:

    Generally, bank accounts only allow you to make one nomination per account.

  • Public Provident Fund:

    You can make multiple nominations for your PPF account, with added details about the share that each nominee will be entitled to.

  • Mutual fund investments:

    Mutual funds allow you to make a maximum of three nominations.

Can you change your nominee at a later point in time?

Yes, of course. You can change the nominee for your investments at any time. In the case of many investments like mutual funds and bank FDs, you can even make this change online. For some investments, you may have to physically visit a branch office and submit the necessary paperwork to modify your nominee’s details.

Conclusion

So, you see how nomination is not just important, but also quite easily available for any kind of investment option you choose? Make sure you take a minute or two to fill in the nomination details each time you purchase an asset or make an investment. And things will go much smoother for nominees when they need to make a claim or transfer the assets and investments to their name.

Read next: WHY YOU SHOULD ALWAYS KEEP YOUR PAPERWORK READY

Nomination makes things easier for your beneficiaries. So does keeping your paperwork ready. In fact, proper documentation can also make this convenient for you. Our blog on this subject highlights the importance of keeping your documentation updated.

Read it here

ADV/8/21-22/869

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