Nomination is one of the most important and least understood parts of personal finance. Most people add a nominee when opening an account, if prompted, and never look at it again.
This article explains what a nomination actually does, why it is not the same as leaving something to somebody, how it works across different accounts, and when it needs updating.
What a nominee is, and what a nominee is not
A nominee is the person an institution will transfer your holdings to after your death. For a depository, a fund house, a bank or an insurer, a registered nominee makes the process relatively simple: the nominee provides the death certificate and their own documents, and the assets are transmitted.
Without a nominee, the institution cannot simply decide who should receive the money. It will usually ask for legal proof of who the heirs are — through documents such as a succession certificate or probate of a will, depending on the circumstances and amounts. That can take months or longer, and costs money.
So a nomination is enormously useful. But it is important to understand its limit.
A nominee is not automatically the owner. Courts in India have held that nomination generally does not override a will or the law of succession. In many situations, the nominee receives the assets as a kind of custodian, and the legal heirs — as determined by your will, or by succession law if there is no will — may still have a claim to them.
The practical consequence: if you want a particular person to inherit a particular asset, a nomination alone may not achieve it. Make the nominee and the will consistent with each other, and seek legal advice where the situation is at all complicated.
Each account has its own nomination
A common assumption is that adding a nominee once covers everything. It does not. Each institution keeps its own record.
Demat account. The nomination registered with your depository participant covers the shares, bonds, ETFs and other securities held in that demat account. If you have two demat accounts, each has its own.
Mutual funds. Nomination is recorded at the folio level with each fund house. Units held in demat form follow the demat nomination; units held directly with the fund house follow the folio nomination. A household with folios at five fund houses may have five separate nominations to check.
Bank accounts and deposits. Separate nomination for each account and, in some cases, each deposit.
Provident fund and pension accounts. Their own nomination process, often through the employer or the relevant online portal.
Insurance. The nominee named in each policy.
SEBI has required investors in demat accounts and mutual funds either to register a nominee or to formally declare that they are opting out. Rules on this have been updated more than once, so check the status of each account rather than assuming it is complete.
Choosing nominees
Multiple nominees. Demat accounts and mutual funds generally allow more than one nominee, each with a percentage share. If percentages are not specified, the holdings are typically divided equally. Consider what should happen if one nominee dies before you — whether their share passes to the others depends on how the nomination is set up.
Minor nominees. A child can usually be a nominee, with a guardian named to act until the child is an adult. Choose the guardian thoughtfully; they will control the assets during those years.
Joint holding is different. In a jointly held account, the surviving holder usually continues as the owner when one holder dies, and the nomination applies only after all joint holders have died. Joint holding and nomination solve different problems and can be used together.
Consistency. Nominees across accounts should reflect a single, coherent intention, ideally matching your will. Five accounts with five different nominees, chosen at five different times, create exactly the confusion nomination is meant to prevent.
When to update it
Nominations are set at a moment in time and stay unchanged until you change them. Life does not stay unchanged.
Review every nomination after:
Marriage. Many people's nominees are still their parents, registered when they opened their first account.
The birth of a child. Consider adding the child, with a guardian.
The death of a nominee. A nomination to somebody who has died is effectively no nomination.
Separation or divorce. An outdated nomination can create a painful conflict at the worst possible time.
Opening any new account. Add the nominee at opening, when it takes a minute, rather than later.
A sensible habit is a yearly review of all accounts on a fixed date, using a simple list of every institution, account number and registered nominee. The depositories' consolidated statement, which lists demat holdings and mutual fund units together, is a good starting point for that list.
Why you still need a will
Nomination speeds up the release of assets. A will decides who they should go to. The two work together, and neither replaces the other.
A will is also the only way to deal with assets that do not have a nomination system, to name guardians for minor children, and to express intentions that are more detailed than a percentage split.
Writing a basic will is not complicated or expensive, and many people put it off simply because it feels morbid. It is kinder to see it as a practical document for your family: one that saves them months of paperwork and prevents disputes at a difficult time.
For anything beyond a simple situation — business interests, property in several places, blended families, dependants with special needs — a lawyer's advice is worth the cost.
A demat account set up properly from day one
Add more than one nominee, with percentage shares, while opening the account. Free to open
We are not lawyers, and this is general educational information, not legal or investment advice. Nomination rules for securities, funds, banks, provident funds and insurance are set by different regulators and laws and are revised from time to time; confirm the current position with each institution or a qualified professional. We run no tips group and no signal service, we manage nobody's money, and no return is promised.
Disclosure: the account-opening link on this page is under Atul Shrivastava's Zerodha Authorised Person registration (NSE AP Reg: AP2516003481; Zerodha Broking Ltd. SEBI Reg: INZ000031633) and earns a revenue share. TheFinBaba is not a SEBI-registered Investment Adviser — this content is educational, not investment advice.
Frequently Asked Questions
What is nomination in a demat account?
Registering one or more people with your depository participant to whom the securities in that demat account will be transmitted after your death. It makes the transfer much simpler than proving legal heirship.
Is the nominee the legal owner after death?
Not necessarily. Courts in India have held that nomination generally does not override a will or succession law. The nominee may receive the assets while the legal heirs retain a claim to them.
Does my demat nomination cover my mutual funds?
Only for fund units held in that demat account. Units held directly with a fund house follow the nomination on that folio, and each fund house keeps its own record.
What happens if I have no nominee?
Your heirs will usually need legal documents, such as a succession certificate or probate, to claim the assets. This can take months and involves cost.
When should I update my nominee?
After marriage, the birth of a child, the death of a nominee, separation or divorce, and whenever you open a new account. A yearly review of all accounts is a good habit.
Related Reading
- The beginners course, for Nagpur
- Transmission when a holder has died
- Accounts for children and parents
- Setting up a demat account properly
- Direct fund folios and their records
- Updating details when life changes
Disclaimer: TheFinBaba provides educational content only - this is not investment advice. Trading involves risk of loss.
