Did you know that you can transfer your mutual fund (MF) units to another person, but most MFs don’t allow it? However, if the first holder dies, units can then be transferred to the surviving joint holders or to the nominee after some paperwork.
Bangalore-based KV Prashant, 43, has been investing in MFs for the past 15 years; a habit he inherited from his father, who was an MF investor since 1990. It was only natural for him then that when his father passed away in October 2011, he got his MF units transmitted to his mother’s name. Here’s how to do this. Being prudent works
Transfer or transmission
Note that when units get transferred to the surviving members in case the first holder dies, it is called transmission of units, not transfer. On the contrary, a transfer happens even when all the unit holders are alive.
It's important to note this difference. Selling MF units and then buying them afresh puts commission in the agent’s pocket. Transmission, on the other hand, doesn’t; it is merely a change in the unit holder pattern.
Transfer of MF units has been somewhat a grey area, until now. Though the Securities and Exchange Board of India’s (SEBI) MF regulations, 1996, permit MFs to allow investors to transfer their existing MF units, fund houses don’t allow all unit holders to transfer their units, en masse. The logic they have is that since MF units can easily be extinguished (in other words, sold) with the fund house, transfer of units “do not make any sense”.
In August 2010, SEBI issued a circular telling all MFs that they must allow dematerialised MF units to be fully and freely transferable post October 1, 2010.
This means if you hold shares in demat form, you can transfer them to who ever you want, provided the receiver has also has a demat account. You can either sell the shares on the stock exchange during market hours or you can transfer to someone, during off-market hours, as part of an off-market transaction.
How to transmit units?
There is a certain set of documents that you require for transmission. The kind of documents would depend on whether or not there is a joint holder.
And if there is no joint holder, whether or not there is a nominee.
In all these cases, though, the basic set of documents is the same. Apart from the letter from a joint holder or a nominee (in case there is no joint holder), you also need to give the death certificate of the deceased unit holder, your own know-your-client certificate and your bank account mandate to get your own bank account registered, instead of the one that is already existent or the one belonging to the deceased unit holder.
Legal documents are not required when there are joint surviving holders. But when nominees stake a claim to the investment, your fund house will ask for some legal documents. These documents range from an indemnity bond if investment amount exceeds Rs.100,000 to an affidavit by the legal heir.
An indemnity bond is an undertaking that we give to indemnify the firm against any losses that may arise. For instance, if the nominee is not registered in a folio and s/he comes ahead to claim the MF units and the legal heir chooses to step aside, the legal heir must give an indemnity bond to the MF. “This means that if, in future, somebody else claims to the MF that s/he is the rightful owner, and not the one who actually claimed the money, the legal heirs (or the ones who signed the indemnity bond) are liable for the loss, and not the fund house,” said Anju Gandhi, partner, SNG and Partners, a Mumbai-based law firm.
How much time does it take?
Srinivas Jain, chief marketing officer, SBI Funds Management Ltd tells us that it usually takes a week to 10 days to get the transmission done. It took almost a month for Prashant to get the transmission done. “My 15 years of MF investing has taught me that fund houses take their own sweet time for operations other than redemptions and fresh investments,” he said. So remember to allot lots of time when beginning the process of transmission.