You have investments worth lakhs or crores. Who gets your mutual funds, shares and FDs after you die?

You may have mutual funds, shares, bank deposits, insurance policies and retirement savings spread across different banks and financial institution. But life is so uncertain and we are not at all prepared for it. What if something happens to you, would your family know where your investments are held and who is entitled to receive them?

This is where nomination and will becomes important. However, a nominee and a legal heir are not necessarily the same person.

You may have added your spouse, child or another family member as a nominee to your bank account, mutual fund or demat account and assumed that the money will automatically go to them after your death.

That assumption can be wrong. Who eventually gets to keep the asset can depend on succession law and, where there is one, a valid Will.

The process of transferring an investment after an investor's death can also vary depending on whether it is a mutual fund, share, bank deposit, insurance policy or retirement account.

Nominee does not always mean owner

“Under the current SEBI framework, the nominee receives the assets as a trustee and on behalf of the legal heir(s). The Supreme Court in Shakti Yezdani has also held that nomination does not confer absolute ownership on the nominee or exclude the legal heirs,” said Anshuman Jagtap, Partner at Economic Laws Practice.

The daughter may be able to approach the intermediary and get the investment transmitted to her, but that does not necessarily mean she becomes the ultimate beneficiary. The question of who is entitled to the asset can still be decided under the applicable succession law and the terms of a valid Will.

“Merely being named as nominee does not ordinarily defeat the rights of the legal heirs,” Jagtap said.

The Supreme Court has also rejected the idea that nomination creates a separate “third line of succession”. In other words, nomination is not a replacement for inheritance rules.

This is why having a nominee and having a Will serve two different purposes. A nomination can make the transmission process smoother, while a Will sets out how you want your estate to be distributed.

“Nomination facilitates smoother and faster transmission of the investment after death, whereas a Will provides testamentary instructions regarding the ultimate distribution of the estate,” Jagtap said.

Experts therefore recommend keeping both updated, particularly after major life changes such as marriage, divorce, the birth or adoption of a child, or the death of a family member.

What happens when there is no nominee or Will?

Not having a nominee does not mean your investments suddenly become ownerless.

The legal heirs can still claim them, but they may have to go through the intermediary's transmission process and provide documents establishing their entitlement.

“For example, in the case of a Hindu individual, the Hindu Succession Act, 1956 would ordinarily govern intestate succession, subject to its applicability and the facts of the case. The nominee does not automatically become the beneficial owner merely because there is no Will,” said Anshuman Jagtap, Partner at Economic Laws Practice.

For families, this is where things can become difficult. Missing documents, KYC or name mismatches, incomplete forms, multiple legal heirs and disagreements among family members can all delay the process.

“The most common reasons are missing documents, KYC or name mismatches, incomplete forms, multiple legal heirs or disputes among family members,” said Shweta Shastri, CFP and founder at Finnora wealth studio.

She also explained what a nominee would generally need to submit: “The nominee usually needs to submit the death certificate, PAN/KYC details and transmission request to the concerned DP, broker, AMC or RTA. Once the documents are verified, the investments can be transferred to the nominee.”

If there is no nominee, the legal heirs have to establish their entitlement.

For joint demat accounts, the position can be different. If one joint holder dies, the securities are generally transmitted to the surviving holder(s), subject to the account mandate and prescribed process.

SEBI has also been simplifying transmission for securities. Its current framework allows eligible single-holder accounts to have up to three nominees and provides a Quick Transmission Processing category for smaller claims. The thresholds for simplified documentation have also been increased to ₹10 lakh for physical holdings per listed company and ₹30 lakh for dematerialised holdings per beneficial owner.

Bank accounts, FDs and retirement savings have their own rules

The same basic confusion can arise with bank accounts and fixed deposits.

If you have a single-holder bank account or FD and have registered a nominee, the nominee can generally claim the proceeds after your death by following the bank's prescribed process. If there is no nomination, the legal heirs have to make the claim.

In straightforward cases where there is no dispute among family members, banks may allow claims through a simplified process without requiring formal legal representation, depending on the applicable rules and documentation.

But if family members disagree over who is entitled to the money, the process can become more complicated. Documents such as a succession certificate, probate or letters of administration may be required depending on the circumstances.

Joint accounts also need attention. What happens after one holder dies can depend on the mandate chosen when the account was opened, such as “either or survivor” or “jointly operated”.

Retirement savings should not be forgotten either

Since the rules can differ between retirement schemes, it is worth checking that the nominations in your EPF, EPS and NPS records are valid and up to date.

Insurance is a little different

Insurance is another area where people often assume that the same nominee rules apply.

"Insurance nomination is primarily governed by Section 39 of the Insurance Act, 1938, while mutual funds and demat securities are governed by the applicable SEBI framework and the rules of the relevant intermediary or depository. Insurance nomination is primarily governed by Section 39 of the Insurance Act, 1938. It allows a policyholder to nominate one or more persons to receive the policy money after the policyholder's death, subject to the provisions of the Act,” said Amitraj Kaushal, Advocate at the Supreme Court of India.

The law also contains specific provisions for certain close family members in the case of life insurance.

“The nomination, Will, nature of the asset and applicable succession law have to be considered together,” Kaushal said.

Most people don't think about nominations until they are filling out a form. But a nomination is something worth revisiting every few years and certainly after a major change in your life.

"Marriage, divorce, the birth or adoption of a child, the death of a nominee, a minor nominee becoming an adult, a change in address or contact details, or the creation or revision of a Will are all good reasons to check your records. Keeping the nomination and Will updated can reduce confusion and potential disputes after the policyholder's death,” Kaushal said.

7 things you should do today

A nomination can make it easier for your family to access your investments after your death, but it does not replace a Will. Keep your nominations up to date, make a Will, and let your family know where your investments are held. A little paperwork today can save them a lot of confusion and stress later.