Mutual funds are among the most popular investment vehicles in Indian households. Investors track NAVs, rebalance portfolios, and optimise tax efficiency — yet often overlook one of the most critical aspects of investing: what happens to these investments after death.

A widespread misconception persists that adding a nominee is sufficient to ensure smooth inheritance. In reality, nomination is only an administrative mechanism, not a transfer of ownership. The true rights over mutual fund investments are governed by succession laws and testamentary intent, not by nomination forms.

This article offers a comprehensive, legally grounded, and investor-centric explanation of the nominee vs legal heir debate — clarifying who really has the right to your mutual funds in India and how you can avoid disputes, delays, and litigation.

Key Takeaways

• A nominee is not the owner of mutual fund investments

• A Will overrides nomination

• Legal heirs have ultimate ownership rights

• Nomination only enables faster transmission, not inheritance

• Absence of a Will can result in 6–18 months of delays and court involvement

Nominee vs Legal Heir: Understanding the Difference

Who Is a Nominee?

A nominee is a person designated in a mutual fund folio to receive the units upon the investor’s death. Nomination is mandated by SEBI to facilitate smooth transmission and protect AMCs from legal exposure.

However:

• A nominee does not acquire ownership rights

• The nominee acts as a custodian or trustee

• AMCs transfer units to nominees only to discharge operational liability

In legal terms, nomination is a procedural convenience, not a succession instrument.

Who Is a Legal Heir?

A legal heir is a person who is legally entitled to inherit assets, either:

• Through a valid Will, or

• Under applicable succession laws if the investor dies intestate (without a Will)

Applicable laws include:

• Hindu Succession Act, 1956

• Indian Succession Act, 1925 (for Christians, Parsis, others)

Legal heirs have absolute ownership rights, regardless of nomination.

Nominee vs Legal Heir: Rights Comparison Table

What SEBI and Indian Courts Clearly Establish

SEBI’s Position

SEBI treats nomination as a facility for transmission, not inheritance. AMCs are not responsible for resolving ownership disputes and are legally discharged once they transfer units to the nominee.

Judicial Interpretation

Indian courts have consistently ruled that nomination does not decide ownership:

• Sarbati Devi v. Usha Devi (1984)
  Nominee is a trustee, not the owner.

• Shakti Yezdani v. Jayanand Salgaonkar (2023, Supreme Court)
  Nomination does not override a Will or succession law.

Established principle:
👉 Nomination facilitates transfer. Succession determines ownership.

This principle fully applies to mutual fund investments.

Who Gets Mutual Funds After Death?

1. Investor passes away

2. Is there a valid Will?

   • Yes → Assets distributed as per Will

   • No → Succession law applies

3. Nominee receives units for operational convenience

4. Final ownership vests with legal heirs

Practical Scenarios Explained

Scenario 1: Will Exists

• Mutual funds go to beneficiaries named in the Will

• Nominee must hand over units accordingly

Outcome: Legally clean and efficient

Scenario 2: No Will, Nominee Is a Legal Heir

• Nominee and heir are the same person (e.g., spouse)

Outcome: Smoothest real-world transmission

Scenario 3: No Will, Nominee Is Not a Legal Heir

• Nominee receives units first

• Legal heirs can legally claim ownership

Outcome: High litigation risk

With Will vs Without Will: Real-World Impact

Common Myths vs Reality

Case Studies: Real-World Outcomes

Case Study 1: Will Overrules Nomination

Background:
Mr. A nominated his brother for convenience. His registered Will left all assets to his spouse and children.

Outcome:
Courts upheld the Will. The nominee was legally required to transfer the mutual fund units.

Lesson:
Nomination cannot override testamentary intent.

Case Study 2: Nominee Was Not a Legal Heir

Background:
Ms. B nominated a close friend and died without a Will.

Outcome:
Parents, as legal heirs, obtained a succession certificate. The nominee was compelled to transfer holdings.

Lesson:
Nominee may receive first, but does not own.

Case Study 3: No Will, No Nominee

Background:
Mr. C had multiple mutual funds but no estate planning.

Outcome:
Family spent over a year in court. Legal costs materially reduced portfolio value.

Lesson:
Lack of planning destroys financial efficiency.

Expert Q&A: Clearing Critical Doubts

Q1. Does a nominee automatically become the owner?

Expert Answer:
No. Ownership is determined by a Will or succession law, not nomination.

Q2. Can a nominee refuse to transfer units?

Expert Answer:
Legally no. Nominees hold assets in trust and are accountable to legal heirs.

Q3. If I have a Will, do I still need a nominee?

Expert Answer:
Yes. Nomination enables faster transmission; the Will determines ownership.

Q4. What if nominee and legal heir are different people?

Expert Answer:
Nominee receives units first but must transfer them to legal heirs.

Q5. What is the biggest succession mistake investors make?

Expert Answer:
Assuming nomination equals inheritance.

What Investors Should Do Today

• Ensure 100% nomination across all mutual fund folios

• Align nominees with intended legal heirs

• Draft a simple, valid Will

• Maintain a consolidated CAS statement

• Inform family about investment and document locations

Why Estate Planning Matters More Than Returns

Even high-performing portfolios can become inaccessible due to:

• Frozen folios

• Prolonged legal processes

• Emotional distress for survivors

• Family disputes exceeding corpus value

Returns compound wealth.
Estate planning preserves it.

Final Conclusion: Who Really Has the Right to Your Mutual Funds?

• Nominee: Procedural recipient, temporary custodian

• Legal Heir / Will Beneficiary: True and final owner

Nomination enables transmission.
Succession determines ownership.

For Indian investors, the only robust solution is a combination of:

• Updated nominations

• A clear, legally valid Will

This ensures that mutual fund wealth passes smoothly, lawfully, and as intended.

Disclaimer

This article is for educational purposes only and does not constitute legal advice. Succession outcomes may vary based on personal laws and judicial interpretation.