A nomination facility is offered in all accounts that any individual may hold, from a bank account to a Demat account or a broking account. The nomination of a person to any account is done primarily to secure any assets of the account holder in question after the demise of the account holder. According to legal stipulations, assets held in accounts are only handed over to nominees mentioned for any given account. Therefore, a nominee for a broking account or any other account is crucial.
What is a Nomination, and Who is a Nominee?
In simple terms, a nomination is a way through which an investor holding any accounts, has a facility to assign a person as a custodian of the accounts upon their death. The person who is assigned the job of the custodian is called a “nominee”. From a legal standpoint, it is essential to appoint a nominee for any account, whether this is a Demat account or a nominee for a broking account.
It must be understood that the nominee is not the person's heir or the legal beneficiary. A nominee simply holds the assets of a person who has passed away in a trust, to be handed over to legal heirs after due paperwork is completed. Therefore, when you open a Demat account, it is vital to have a nominee for your account. Similarly, if you open a broking account, a nominee must be assigned to the account.
The Benefits of Nomination
You, an investor, may have a range of investments and financial products, from life insurance and ULIPs to stocks, mutual funds and fixed-income instruments. Furthermore, you may have a bulk of stock at some point in the future if you are subscribing to any upcoming IPO. Besides this, your assets may include real estate. The key purpose of nomination is that it facilitates the process of transferring any assets belonging to deceased persons. The process of transfer of assets is expedited quickly without too much cumbersome paperwork.
Nomination is critical in the planning of seamless succession. If there is no nomination in investment, beneficiaries and legal heirs may have to go through harrowing processes to claim what is their rightful inheritance. This is time-consuming, let alone a task of great effort. It should be noted that the process to nominate individuals varies across a range of investment products and financial instruments.
Nomination in Investments and Broking Accounts
In case an investor opens a Demat account to invest in securities, they have to also open a trading account with a brokerage. The trading account is linked with a Demat account, and these two accounts are connected to your bank account. This is what makes transactions of buying and selling securities smooth. When opening a Demat account and any broking account, you can do so jointly or solely. In the case of a joint account, the securities in any investment account are transmitted to the joint holder of the account.
However, if you are the sole holder of an account, like a broking account, for instance, your holdings will not automatically be transmitted to your heirs upon your unfortunate demise. This is why a nominee for a broking account is essential. There is no doubt that beneficiaries will receive their rightful inheritance, but only after they go through a burden of paperwork that costs in terms of time and effort. The simple resolution for this is to get a nomination done when you open a broking account or any other account. A nomination ensures that the holdings are quickly transferred to a nominee and then given to the rightful beneficiaries.
Facts About Nomination
There are certain facts about the nomination and have a nominee for a broking account that may interest you:
- Joint Accounts - A nomination is offered for any accounts in joint names. In the case of joint holders, in the event of the death of anyone, securities and capital is transferred to the other holder. However, upon the death of both holders, a nominee will hold the account in trust for the beneficiaries to receive it.
- Opting For “No Nomination” - Certain broking accounts which have been started online previously did not have nomination provisions. However, in case you do not have a nominee for an account, you can assign a nominee at any time, or change a nominee at any time, if you so wish.
- Individual Nomination - Nominees are individuals and cannot be a group of people or any entity like a HUF, a society, a trust or any other body.
- Minors Allowed - For Demat accounts, minors are permitted to be nominees.
- Mandates - The Government of India, through the Securities and Exchange Board of India (SEBI), has made it mandatory for all Demat and broking accounts to have a nominee. This regulation was passed in October 2021. For any accounts opened before this time, the last date to assign a nominee to any account is 31 March 2023. In case a nomination in accounts is not made by this time, accounts will be frozen, reports proclaim.
The Nomination Process
Individuals may put off nomination when they open a Demat account and a broking account. This may be due to sheer laziness or the fact that they do not realize the importance of nomination. Either way, your beneficiaries benefit from nomination in your absence, and all you have to do is to fill out a form for a nomination to exist. This can be done when you start accounts and at any time after that. Processes are simple, and one form can make life easier for your heirs in the future.
Be Safe, Not Sorry
Today, you often hear stories about investors bequeathing large amounts of wealth and assets in the form of securities in a Demat account to their unknowing beneficiaries. However, when these individuals open a Demat account to invest, they fail to make a nomination. So, whether you invest in stocks or an upcoming IPO, you must consider the future of the heirs you will leave your wealth to. Nominations ensure that the rightful heirs get their due inheritance without any hassle.