Can NRI nominees claim financial assets of deceased investors in India? Here’s all you need to know

When an Indian resident holding mutual funds, shares or other financial assets passes away, their nominees act as a custodians of those assets until they are transferred to the legal heirs or the investor’s family.

In some cases, where the investors do not wish to appoint a nominee, they can formally opt out by submitting the prescribed declaration. This can be done by logging in to your broker, bank, or mutual fund platform account.

Can you name an NRI as a nominee?

Yes, even a non-resident Indian (NRI) can be appointed as a nominee, subject to the exchange control rules in force, from time to time, according to information available on Association of Mutual Funds in India (AMFI).

If the original account holder chooses an NRI as a nominee, the claim process may involve additional documentation and compliance requirements, depending on the type of asset and applicable rules.

For instance, Zerodha users are allowed to add an NRI as a nominee but their address and mobile number must be Indian. Clients are not required to provide address proof while adding a nominee, the stock brokerage’s website states.

Can NRIs claim and remit these funds?

If the NRI nominee is also the legal heir and the rightful owner of the said financial assets, they can liquidate the inherited investments and seek repatriation of the proceeds, subject to Foreign Exchange Management Act (FEMA) rules, according to Nishant Shanker, tax and FEMA expert at Navraj Global Advisors.

Under the FEMA, an NRI or person of Indian origin (PIO) can generally remit up to $1 million per financial year from their Non-Resident Ordinary (NRO) balances or sale proceeds of assets acquired by inheritance, subject to docs available and payment of relevant taxes.

Any amount above $1 million requires prior approval from the Reserve Bank of India (RBI).

“In practice, the proceeds would generally be routed through an NRO account and an AD banker, who will verify the inheritance documents, tax compliance and FEMA requirements before permitting the overseas remittance” he added.

How to nominate an NRI?

Nomination can be made either at the time of initial application for purchase of mutual fund units or subsequently. The same rule applies for stocks.

To make a nomination while investing in a financial asset for the first time, the applicant may fill up the ‘Nomination’ section provided in the account opening application form. Subsequently, the nomination can be registered after submitting the duly completed nomination form at the designated investor service centre of the mutual fund or its registrars.

Similarly, for stocks, an investor can add a nominee online by logging into their stock broker or depository participant portal, such as through National Securities Depository Limited (NSDL) online nomination option.

If you nominate someone once, it does not mean they have to stay throughout your holding period. You can change you nominee multiple times, which is advisable after major life events such as marriage, divorce, birth of a child or adoption and death of the first nominee.

How many nominees can you appoint?

A person may nominate up to three people, and clearly indicate the percentage of allocation in favour of each of the nominees against their names, and such share shall be in whole numbers without any decimals, according to AMFI.

For financial assets like stocks and mutual funds, you are also required to authenticate the request using an Aadhaar-based OTP. The nomination form must also be signed by the unit holder. In case the units are held jointly, all joint holders will need to sign the nomination form, irrespective of the mode of operation of the account.

A new nomination request will result in simultaneous cancellation of existing nomination and replacement of the same by a fresh one. In simple terms, it means a fresh nomination for a portfolio or account will automatically overwrite an existing nomination.

Does the nominee automatically become the owner?

Not necessarily. A validly registered nominee is generally entitled to make the claim and receive the money from the specified authorities. However, nomination does not by itself determine the ultimate beneficial ownership of the amount.

The final distribution of financial assets after the original investor’s death is governed by the deceased’s will or, in the absence of a will, the applicable succession laws. This is why experts advise investors to make a will, thus avoiding legal disputes among family members.