Managing your finances is a complex endeavour, and experts strongly advise you to remain informed about the necessary precautions to safeguard your demat account. An important step in this regard is selecting a demat nominee for your security portfolio.
Doing so guarantees the smooth administration and transfer of your assets to your chosen beneficiary in the unfortunate event of the account holder’s untimely passing.
Let’s delve into the fundamentals of nomination and guide how you can add a nominee for a demat account.
Who is a demat nominee?
A nominee for a demat account refers to an individual or entity appointed by the account holder to act on their behalf in the event of their demise.
Financial assets like stocks, bonds, and mutual funds held in a demat account are transferred to a nominee upon the account holder’s demise.
The nominee plays a crucial role in ensuring the smooth transfer of the assets held in the demat account to the rightful heirs or beneficiaries after the account holder’s death.
Features of adding a demat account nominee
- Nomination is available exclusively to individuals who hold a demat account, either in their name singly or jointly. Entities such as societies, trusts, corporations, partnership firms, and HUFs do not have the option to nominate anyone.
- For demat accounts held jointly, a nomination is allowed. However, if one of the joint account holders passes away, the securities will automatically be transferred to the surviving account holder(s). Only when all the joint holders have passed away will the securities be transferred to the nominee.
- If a minor is a nominee in a demat account, the details of their guardian must also be provided. Minors are not eligible to nominate anyone, whether it is a direct nomination or through a guardian.
- Currently, a demat account holder has the flexibility to nominate up to three individuals. If two or three nominees are designated, it is necessary to specify the proportion (%) in which securities should be transferred in the event of the account holder’s demise.
How to add a nominee to a demat account?
Nomination is an important feature for demat accounts, and you have the choice to either nominate someone or explicitly decline the nomination.
NSDL offers a convenient online nomination service for your NSDL demat account, applicable to individual account holders who are residents.
With the help of this online tool, demat account holders can select three or less demat nominees. Here’s a quick guide on how to use it:
Step 1: Start by entering your DP ID, Client ID, and PAN. You will receive an OTP on the mobile number registered in your demat account.
Step 2: Next, you can either choose to nominate someone or opt out of the nomination process.
Step 3: To complete the process, e-sign using your AADHAAR. You will receive an OTP on the mobile number registered with AADHAAR.
To begin the nomination process or opt-out, you can visit this link.
Benefits of adding a nominee
Here are several compelling reasons why you should consider designating a demat nominee for your account:
Smooth asset transfer
Having a nominee in place ensures a seamless transition of assets held in your demat account, including mutual fund units, bonds, and shares, in the unfortunate event of your untimely passing.
Reduction in legal hassles
It alleviates the burden on the legal heirs of the account holder, sparing them from the lengthy process of gathering and submitting various documents like affidavits and no objection certificates to the relevant authorities.
Peace of mind
Adding a nominee provides a sense of security and peace of mind, knowing their loved ones will have financial stability in their demise.
The absence of a nominee can potentially lead to disputes among legal heirs over the inheritance of assets from the demat account, which can be avoided by having a clear nominee designation.
Is adding a demat nominee enough?
Once you have assigned a nominee to your demat account, you might feel relieved that your assets are safe with the intended recipient.
However, it is essential to understand that nominees do not become the legal inheritors of your assets. They only serve as custodians who facilitate the transfer of wealth.
Now let us understand another financial term which is a “Will”.
A Will is a legally binding document that empowers you to dictate how your assets should be distributed among your chosen beneficiaries after your demise.
It serves as a safeguard to guarantee that your wealth is passed on to the intended recipients, thereby preventing potential disputes within your family. In the absence of a will, your assets are allocated to your family members based on the prevailing laws governing succession.
For example, let us understand through the case of Mr A. He has nominated his eldest child for his demat account. In the unfortunate event of Mr A’s passing, the securities would be passed on to his eldest child.
However, if Mr A stipulates that the stocks should be divided equally between his two children, the nominee is legally obligated to distribute the assets accordingly. In this scenario, a Will takes precedence over the nomination in the demat account.
Incorporating a nominee into your demat account is a crucial step in guaranteeing the smooth transition of your securities should an unfortunate event occur. It offers significant benefits to your family by saving them both time and hassle.
Without the presence of a designated nominee or a Will, in the event of the account holder’s demise, the assets within the demat account might end up in the hands of government-appointed administrators or be subjected to the complexities of the legal system.
Therefore, adding a nominee to your demat account and having a strong Will further empowers the account holder to have control over the fate of their assets, ensuring their desired handling and distribution.