Transmission of mutual fund units on death

Transmission of mutual fund units is the process by which the ownership of mutual fund units held by a deceased unitholder is transferred to the nominee registered in the folio, or in the absence of nomination, to the legal heirs of the deceased as established by succession law. Transmission is distinct from a switch or redemption; it is not a transaction initiated by the investor but a post-death legal process initiated by the claimant(s) upon providing proof of death and identity to the AMC or its Registrar and Transfer Agent (RTA).

In India, SEBI and AMFI have standardised the documentation requirements and processing timelines for transmission, and have progressively simplified the process to reduce the hardship faced by bereaved families.

Regulatory framework

Transmission requirements are governed by:

• SEBI (Mutual Funds) Regulations, 1996, Provisions on investor rights and unit transfers.
• SEBI Circular SEBI/HO/IMD/DF2/CIR/P/2020/263 (31 December 2020), Standardised documentation for transmission of units; reduced documentation requirements based on claim value thresholds.
• SEBI Circular SEBI/HO/IMD/DF2/CIR/P/2021/628, Further simplification of transmission documentation.
• AMFI Operational Guidelines on Transmission (periodically updated), Operationalise SEBI’s transmission requirements, prescribed forms, and processing timelines.

The guiding principle behind SEBI’s successive circulars on transmission is to reduce the documentation burden, especially for smaller folio values, while maintaining adequate safeguards against fraudulent claims.

Types of transmission scenarios

Scenario 1: Joint folio, first holder dies

In a jointly-held folio (e.g., First Holder: A; Second Holder: B), on the death of the first holder (A), the folio automatically continues in the name of the surviving holder(s) (B). This is not technically a “transmission”, it is a change in sole holding by operation of survivorship. Required documentation is minimal: a death certificate and a request letter from the surviving holder. The folio is then reregistered in B’s name as sole holder.

Scenario 2: Sole holder with nominee

On the death of the sole holder, units are transmitted to the registered nominee. The nominee does not inherit ownership as a legatee; the nominee holds the units in a trustee capacity for the benefit of the legal heirs. In practice, once transmission is completed to the nominee, the nominee becomes the registered unitholder and can redeem or hold the units.

SEBI’s revised framework simplifies documentation for nominees:

• For claim value up to Rs 5 lakh: Death certificate, KYC-compliant identification of the nominee, and a simple indemnity/affidavit. No succession certificate or probate required.
• For claim value above Rs 5 lakh: Additional documents such as a notarised indemnity bond, affidavit of relationship, and in some cases a surety bond, depending on the AMC’s policy.

Scenario 3: Sole holder without nominee

When no nomination is registered, the units must be transmitted to legal heirs via the succession law process. This is the most complex scenario and typically requires:

1. A legal representative (administrator or executor) to be established.
2. One of the following legal documents, depending on jurisdiction and estate complexity:
   • Succession certificate (for movable property, issued by a civil court under the Indian Succession Act, 1925, applicable to Hindus, Muslims, Parsis, and Christians not covered by personal law exclusions).
   • Probate (for a will, granted by a High Court or district court).
   • Letters of administration (where the deceased died intestate and estate value requires court authority).
3. An indemnity bond and legal heir affidavit, as prescribed by the AMC.

For small-value claims without nomination, SEBI’s simplified process (effective from 2020) allows transmission to legal heirs without a succession certificate for folio values up to Rs 5 lakh, subject to submission of a notarised affidavit and indemnity, and a 30-day notice period to other legal heirs.

Transmission process: step by step

1. Claimant notifies the AMC or RTA: The claimant (nominee or legal heir) contacts the AMC or RTA (CAMS or KFintech), obtains the prescribed transmission request form.
2. Document submission: Claimant submits the completed form along with:
   • Death certificate (attested or self-attested copy, depending on value threshold).
   • Proof of identity and address of the claimant (for KYC).
   • For nominee: Proof of nominee relationship if not already on record.
   • For legal heirs: Succession certificate, probate, or letters of administration as applicable.
3. Verification by RTA: The RTA verifies documents. For claims above specified thresholds, the AMC’s legal or compliance team reviews the documentation.
4. New KYC: The claimant must complete KYC if not already registered with a SEBI-registered KYC Registration Agency (KRA). Units cannot be transmitted to a non-KYC-compliant claimant.
5. Transmission or redemption: The claimant may choose to:
   • Receive the units transmitted into a new or existing folio in their name.
   • Receive direct redemption proceeds (the AMC redeems the units and pays the NAV proceeds to the claimant’s bank account).
6. Completion timeline: AMFI guidelines specify a processing timeline of 15–30 days from the date of submission of complete documents. AMCs have the right to request additional documents if the initial submission is incomplete.

Tax implications

Transmission itself is not a taxable event: no capital gains tax arises on the transfer of units to a nominee or legal heir. However, when the claimant subsequently redeems the transmitted units:

• The cost of acquisition for capital gains purposes is the original cost paid by the deceased unitholder.
• The holding period for classification as short-term or long-term includes the period for which the deceased held the units (the claimant’s holding period is computed from the original purchase date, not the transmission date).

This is established by Section 49(1) of the Income Tax Act, which provides that the cost of assets acquired by way of inheritance or transmission is the cost to the previous owner.

Nomination vs transmission

Nomination does not operate like a nomination in insurance (where the nominee is the sole beneficiary). In mutual funds, the nominee holds units as a trustee for legal heirs. The nominee is the first point of contact for transmission, but legal heirs who are not nominees retain their rights under succession law to claim the underlying assets from the nominee.

The nomination article covers the process of registering and updating nominations.

SEBI’s 2023 circular made it mandatory for all existing folios to either register a nominee or submit a declaration opting out of nomination by a specified deadline. The implications of this requirement are covered in SEBI mandatory nomination/opt-out.

Related articles

• Nomination in MF folio
• SEBI mandatory nomination/opt-out
• Folio number
• Registrar and Transfer Agent (RTA)
• Dematerialisation of MF units
• Unit-holder rights
• AMFI

References

1. SEBI Circular SEBI/HO/IMD/DF2/CIR/P/2020/263 (31 December 2020), Transmission documentation simplification.
2. SEBI Circular SEBI/HO/IMD/DF2/CIR/P/2021/628, Further transmission simplification.
3. AMFI Operational Guidelines on Transmission (latest version).
4. Indian Succession Act, 1925, Succession certificate provisions.
5. Income Tax Act, 1961, Section 49(1), Cost of acquisition in case of inheritance.