A single account implies that the investment is held in your sole name. A joint holding means shared ownership. However, unlike in the case of bank savings accounts, MFs allow relatives or friends, and not necessarily your spouse, to be the joint account holder. Moreover, you do not need a joint bank account to create a joint MF holding. You can fund your MF purchase from any of your own bank accounts as well.
Financial experts say that most couples tend to opt for accounts with the joint mode of operation. In such cases, difficulties arise with online transactions. Many platforms and websites of asset management companies are not geared for multiple OTPs (one-time passwords) and you are forced to submit physical forms and cheques for transactions. However, if you choose either or survivor mode, then you can transact online smoothly.
The second problem with joint holding is the possibility of legal disputes. The second or third holder may claim the asset as his or hers even though they could have been created from your personal funds alone. This issue may become particularly problematic in divorce cases. Income Tax law recognizes the first holder as the sole person responsible for payment of taxes from a jointly held MF investment. However, there are procedural glitches here as well. Joint account holders have received notices because their PAN numbers have been picked up in the Annual Information Statement (AIS). Though they are not liable to pay tax, the issue of responding to notices or communications from the tax department can create hassles.
The third disadvantage of joint holding is that holder deletion is only possible in cases of deaths and divorces. Moreover, a nominee needs to be added by the survivors upon the death of either of joint holders.
In light of these issues, experts favour single holding for MFs with the nominees in place. However, there is one practical advantage in opting for a joint holding with either or survivor mode of operation. Upon the death of the first holder, the second holder can continue to operate the MF investment. In the case of the single account, nominees need to submit their KYC, death certificate of the account holder and various other documents in order to gain access to the MF folios of the deceased.
In an ‘ideal scenario’, the joint holder needs to intimate the fund house about the death of the first holder and submit related documents like a death certificate before operating the account. However, for emergency expenses, this may not always be feasible and hence in case of either or survivor, the second holder enjoys uninterrupted access to the MF folios. Apart from this, AMCs tend to be faster about processing transmission (inheritance) to a joint holder than a nominee. This is generally because the joint holder’s KYC is already done whereas the AMC only has a few details about the nominee.
Even if you choose single holding, ensure that nomination is done. Subhash Gupta, 43 a resident of Mumbai, faced significant challenges when attempting to claim mutual fund units that were held by his late father. The difficulties arose because his father had not nominated anyone for the accounts. This complicated the process of transferring the units to Subhash’s name upon his father’s demise. When Subhash sought legal advice, He was informed about the requirement for a succession planning certificate, which was necessary to establish Subhash’s right as the legal heir to claim the units of his late father. Obtaining that certificate cost him Rs3 lakh, on top of the expenses and time already spent to claim MF units worth Rs16 lakh. “Things would have been a lot more convenient and easier if we had updated details of the nominee on time or created the folio with multiple holders,” says Subhash. “Seeking legal support in case of disputes or claims can be difficult; often, lawyers demand fees based on the amount you receive after settlement. Besides, it can be costly and time consuming,” says a mutual fund distributor who declined to be named.
To avoid these issues, financial planners say it is advisable to designate a nominee or joint holder for your assets and ensure that your estate planning documents, such as your will, are up to date and reflect your current wishes. “There are incidents where the claimants give up and the units remain unclaimed as the process involves complications in the absence of nomination and joint holding,” said an AMC executive who did not want to be identified. “A fool-proof way to simplify things is to have a will in place, which ensures the asset distribution as per your plan” says Kartik Sankaran, founder of Fiscal Fitness, an MF distributor in Mumbai.
According to a consultation paper released by market regulator Sebi in February 2024, about 7% of mutual fund accounts have opted out of nominations. However, a higher portion of mutual fund folios in joint holdings—27.19%—have neither nominated nor opted out. The first ever deadline that Sebi had set for account holders to either opt in or opt out for nomination was 31 March 2023. Failure to comply meant that folios and transactions would be frozen. After two extensions, the deadline has been pushed to to 30 June now.
Sebi also made another change on 30 April. It exempted jointly held folios from the requirement to have a nominee. Previously, all MF accounts, whether owned by a single investor or jointly with another person, required a nominee to be designated. This nominee would get custody of the investment in case of the account holder’s death. The new regulation exempts jointly held folios from the nomination requirement.
This regulation doesn’t apply to single MF folios, which means opting for nomination is still mandatory for folios where the mode of holding is single.
Sebi clarified that all existing folios under single mode of holding will have to opt for nomination or opt out of nomination by 30 June. Experts say joint holders too should also ideally opt for nomination though this is no longer required by Sebi. “Joint holders must still opt for nomination; life is uncertain, and in a scenario where holders die before the transmission takes place, having a nominee can reduce the burden on the claimant in such cases,” says Amol Joshi, mutual fund distributor.
Financial experts say it is always better to opt for single holding with nomination unless you have a strong relationship of trust with your joint holder. In the latter case, opt for the either or survivor mode of operation to ensure ease of transactions.