We need to fill the form quite often either opening a bank account or investing elsewhere. There is a column in the forms which is about nomination. Nomination is to appoint a nominee who will receive the sum of investment in case of death of the investor. To appoint a nominee is the easiest process of transfer the amount from one name to another in case of any unwanted cause.
But most of us ignore this column while filing the forms. This is because of some think it’s not necessary to appoint a nominee for the investment. The investment may be big or small but money is money. In case of any mis happening it will be very difficult to cash the investment without appointing the nominee.
The second reason may be for not appointing the nominee is the lack of understanding about the nominee rules. Some thinks that nominee is the person who has the legal rights on the investment and in case of any occurrence; the nominee can take away his money.
The nomination process in generally applicable when investing somewhere or opening a bank account. Generally it applies when
- Opening bank account.
- Investing in shares
- Insurance policies
- Mutual funds
- Fixed deposits
And may be many more.
The definition of nominee may be change investment to investment. Like there is different meaning of nominee in life insurance policy and mutual fund. So there is an explanation of nominee with different investment.
Investment in equities: - in equities the company act 1956 gives nominee a new definition. There was a case with Bombay High Court which ruled that in case of equities, the rights of nominee is more than the person who has the rights on property and investment according to will.
The court says that under the companies act, in case of death of a shareholder company knows only the nominee and not the person who has the rights in will. The nominee will have the rights on the equity investment in case of death of the shareholder.
So with this rule, a person must and carefully appoint the nominee on his investment in equities for the smooth transfer as well as to avoid any conflicts between nominee and bequests.
Mutual fund: - Appoint nominee is a must in case of investing in mutual fund. If one does not wish to appoint a nominee for his investment, he needs to sign a separate declaration form. This rule is effective from 01-04-2011. Nominee is a simple custodian in case of mutual fund.
Life insurance: - life insurance has the different story in nomination rules. In case of death of policy holder of life insurance, the legal heirs too can claim for the insurance amount. Supreme Court recently held that the nominee indicates only the hand to which the amount should be transferred. However, there is a different story that nominee has any beneficial right or not on the amount received. In case of life insurance policy, legal heirs have the right over nominee to receive the amount of insurance.
Thus it is advisable to appoint a nominee in life insurance policy who too has the right on your money for avoiding any conflict as well as smooth transfer of the money.
Co-operative societies: - in case of co-operative societies, appointing nominee is advisable for smooth transfer of the property. But in case of co-operative society one can appoint nominee to a person who has the blood relation with the owner.
One can change the nominee any time whenever he wants. Moreover he can appoint more than one nominee for his investment. The right on the property is transferred in the name of nominee in case of owner death.
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