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Mr. Sanjib Baruah, a senior manager in a private company having rich experience of 10 plus years with a postgraduate qualification. He keeps saving and investing in various financial instruments from time to time, but at the time of signing the contract or filling up the application form, he loses patience and always in hurry to complete the task. Such behavior is not only confined to Mr. Sanjib Baruah, however across the majority of the investor. Due to behavioral finance, the psychology on the behavior of investor, etc deeply affects the decision about money management and may change the course of one’s entire family‘s welfare which affect the wealth.
Among various particulars, a nomination is a very vital aspect while an investor, etc enter into any financial transaction like Bank Accounts, Mutual funds, Life Insurance Policy, Health Insurance Policy, etc, Demat Account, PPF Account, etc Rs 32000 Crore as of 2019, is unclaimed in Banks accounts, Life Insurance companies, Shares, etc. due to disputes in the right claimant for the deceased accounts. In such an account either nomination is missing or nominee is included but not the legal heir is identified yet. Investors often ignore the nominee or include the nomination without making a conscious decision about a financial major decision.
Nomination and Legal Heir
Today, the majority of a household is having bank accounts who are saving money in Fixed Deposits, purchasing risk cover for life or other insurance, investing money in MF, Shares, bonds, etc, and evening procuring loans, etc.
What is a nomination?
A nomination is merely mentioned in the financial application, contracts, etc to ease the financial settlement during the demise or original owner of accounts.
In other words, the original owner of the financial assets, etc authorizes a person to act as a custodian of their money and not the owner and need to transfer the asset during the demise of the original owner.
Nomination does not mean an original owner has given the right to transfer their assets, investment’s value to nominee during the death.
A “will” normally overrides the nomination and legal heir can always claim provided it’s been established by the court of law.
What is Legal Heir?
A legal heir is one who is of the same blood of the deceased, and who takes the succession by the force of law.
Now, let me explain as Investor, Insurance Policy Holder, Creditor, etc with few Financial Products we often deal with need due diligence while incorporating the nominee.
Life Insurance Products
Here often the name of the nominee is given while we agree to sign the proposal form.
However, it must be noted down that the nominee is not the beneficiary of the fund they only act as the receiver of the fund.
If required in the due course they need to be transferred to the legal heir.
Lately – beneficial nominee is only allowed as only Father, Mother, Spouse and Children are allowed to be in Life Insurance Products.
Mutual Fund Products
Today most of the investors are investing in the mutual funds however the nomination part is little taken care of. In a mutual fund, most of the AMC allows to include the nominee a minor as well as a third party. The catch is if a third person is appointed as a nominee the greatest drawback is the future litigation.
The third person is just the receiver of the fund not the beneficiary of the fund; means do not remain in the notion that the receiver can claim the money. If the beneficiary has a will then this can lead to legal recourse against the nominee mentioned while doing the investment.
To read the further articles please get your copy of Eastern Panorama February issue @http://www.magzter.com/IN/Hill-Publications/Eastern-Panorama/News/ or mail to contact @easternpanorama.in
