Nomination facility for bank accounts/NSC/LIC/Mutual Funds/PPF explained

The provisions of nomination are found in various financial products like Life Insurance, Provident Fund, Gratuity, Co-operative societies and banking regulation acts (section 45ZC to 45 ZF) and Banking Companies (Nomination) rules 1985 and the relevant provisions of the Indian Succession Act. The nomination facility is available only to individual depositors and not to any person in a representative capacity such as a director, secretary, partner of a firm, or Karta of HUF, etc. However,

Nomination is a way to protect the interests of your family who will stand to benefit from these investments in the event of your death. The Bank can release the account proceeds or contents of the locker to the nominee(s) without insisting upon a Succession Certificate, Letter of Administration, or Court Order. In the absence of a nomination, the financial investments are likely to be tied up in prolonged legal procedures for your legal heirs to establish your claim on the investments, which may include procedures like providing a copy of the Will or succession certificate, a no-objection certificate from the other heirs and an indemnity protecting the investment provider against claims by others.

Nomination in Saving/Current/FD/RD Account in Banks:

The full name of the nominee, address, age, and guardian’s details (if the nominee is a minor), have to be provided to the bank. The nominee’s consent or signature is not required. Witness Signature is not required if the depositor is literate. However, nomination is to be witnessed, in case of depositor is illiterate.

Nomination facility for bank deposits:

The nomination system is not uniform for all categories of financial products.  For example, banks do not accept more than one nominee in any particular deposit account. However, Finance Minister Nirmala Sitharaman introduced in the Lok Sabha the Banking Laws (Amendment) Bill, 2024, which seeks to give customers an option to increase the number of nominees per bank account to four, from the existing one, among others.  When the depositor has more than one deposit account, he has to submit separate nominations in respect of each deposit account even though all the deposits stand in the name of the same depositor. In case of joint accounts in the names of two or more individuals, the nomination shall be jointly by all the joint account holders in favour of one person only, irrespective of the operational instructions. In the case of self–operated minor’s accounts, no nomination can be accepted from the minor. In such cases, nomination can be accepted only from lawfully entitled/empowered guardians to act on behalf of the minor. The nominee is entitled only to receive the proceeds of the deposit in the event of death of the depositor / all depositors; he or she cannot replace his name/her name in place of the deceased depositor in the same account. The nominee is not eligible to borrow against the deposit standing in the name of the deceased depositor. Note that in case you have not done any nominations till now, you should request Form No DA-1 from your Bank which is used to assign a nominee in the future. In the same way, to change/cancel the nomination you need to fill up Form no DA-2.

Nomination in NSC/LIC/Mutual Funds/PPF

Implications of nomination are different for each category of assets. While banks accept only one nominee per single deposit, a policyholder can appoint multiple nominees and can also specify their shares in the policy proceeds. Investments in National Savings Certificate (NSC), may require the nomination to be witnessed. There may be specific exclusions or inclusions specified for a financial product. Life Insurance policyholders can nominate multiple nominees and specify the percentage of share to each nominee from the policy proceeds. However, Insurance companies do not register a nominee who is not a family member of the policyholder. In the case of mutual funds, you can nominate up to three people, who can be registered at the time of purchasing the units. While filling in the application form, there is a provision to fill in the nomination details. You can nominate one or more persons as nominees in PPF and specify the percentage of shares to each nominee. Form F can be used to change or cancel a nomination for PPF. Also, note that you cannot nominate anyone if you open a PPF account for a minor.

It is important to note that a nominee is just a trustee to the assets of a person who is dead and gone, in terms of legal status. Even though, the nomination is intended to facilitate expeditious and hassle-free settlement of claims in the account of deceased depositors. Still, other legal heirs have the right over the assets of the deceased. In case financial institutions like banks, post offices, and insurance companies receive a stay order from the Court of Law (not legal notice from an advocate) before the payment to the nominee, they have to withhold the operation in the deceased account till the clearance is received from the court. The same rule is applicable for operation in safe deposit vaults/safe deposit lockers or transfer shares in societies. Therefore if your intention is for example only your wife is entitled to get all the money and not your sons and daughters, in addition to a nomination make a will which will be a huge favour to your wife.

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