A Nominee Doesn't Inherit Your Mutual Fund Units

Filling in a nominee on a mutual fund folio or demat account reads like naming a beneficiary - one name, one person who gets the asset when the investor dies. For securities and mutual fund units, that isn’t what nomination legally does.

The Nominee Holds in Trust, Not in Title

In 2023, the Supreme Court, in its own judgment in Shakti Yezdani v. Jayanand Jayant Salgaonkar, affirmed a Bombay High Court ruling addressing exactly this question for shares and securities held in demat form, under the Companies Act and the Depositories Act: a nominee holds the asset in trust for the legal heirs, not as its owner. Nomination gives the nominee the standing to claim the asset from the AMC or depository without first producing a succession certificate - a genuinely useful shortcut for releasing the asset quickly. It does not override a valid will, and it does not override the law of intestate succession if there is no will. Whoever the will or succession law entitles to the asset can still claim it from the nominee.

Mutual fund units are governed by SEBI’s own regulations rather than the exact provision the Court ruled on, but AMCs and practitioners have widely read the same trustee-not-owner logic across to fund nominations by analogy.

Insurance Nominations Follow a Different Statute

This is a narrower rule than the one most investors actually know, because it isn’t the rule that governs life insurance. Under Section 39 of the Insurance Act, certain categories of nominee - typically a policyholder’s spouse, parent, or child - can receive the payout beneficially, in their own right, not merely as a trustee for the estate. Two nomination forms, filled out with the same intent, filed with an insurer and an AMC, can carry different legal weight for the same reason they look identical: one sits under insurance law, the other under company and depository law.

Naming a nominee is still very much worth doing - it’s the difference between an heir accessing an account in weeks versus months. It just means nomination on mutual fund or demat holdings is an operational convenience, not a substitute for a will, and treating the two as interchangeable is the specific mistake the courts have now closed off.

Name the nominee - it is the difference between an heir reaching an account in weeks rather than months. Then write the will anyway, and check whether each nomination sits under insurance law or under company and depository law, because the same form carries different weight depending on which.