After several weeks ago when I had written explaining How To Transmit Mutual Fund Investments Of Parents, As A Legal Heir, there were enquiries about transmission of units of deceased investor’s investments having a lock-in period.        

So today I will elucidate more about the process/procedure for transfer of mutual fund units with a lock-in period to the next of kin.

Among Mutual Funds, Equity Linked Saving Schemes have a lock-in period of three years, and some of the closed-ended schemes like Fixed Maturity Plans (FMPs) have a maturity period concurrent to that of the fund itself. To claim the proceeds, the procedure remains the same across all categories of funds, but the settlement time differs for the lock-in funds.

The basic intent of investing is to secure oneself and family’s future. But sometimes due to the untimely demise of an investor, the next of kin ought to make claims. Although it is difficult to think about making claims when you have lost a close family member, yet it is an important thing to do.

  • As mentioned earlier, ELSSs have a mandatory lock-in period of three years, are diversified funds that help in wealth accumulation and at the same time offer tax-saving benefit under section 80C of the Income-tax Act,1961. Investments made in an ELSS through systematic investment plan (SIP) is also subjected to a three-year lock-in, from the date of each of those instalments.

    [Read: Which Are The Best ELSSs (Tax Saving Funds) For 2019?]

    Suppose if an investor who had invested in an ELSS passed away immediately after 6 months of investing, during the lock-in period, then, as per the ELSS Rules, the deceased investor’s units will get transmitted to the next of kin, and the lock-in tenure is reduced to one year.

    The actual proceeds are allowed for withdrawal only after completion of one year from the date of the original investment, i.e. a year from the initial date of units allotted to the first original unit holder and not transmission date.

    Hence when the original unit holder passes away, within a year, the funds stay invested for a minimum period of a year, and thus the lock-in reduces.

  • FMPs, as the name suggests, are close-ended debt funds (investments can be made only during the new fund offer period) with a fixed maturity horizon (i.e. the investment maturity, which is fixed, is declared at the outset).

    The investment time horizon range varies from as low as 30 days to 5 years. Since the maturity time and money (collected from the investor) are known beforehand, the fund manager can invest with reasonable confidence in securities that have a similar maturity as that of the scheme.

    Thus, the scheme invests at a pre-determined yield to lock it at the time of investment for the fixed time horizon and hold the portfolio till maturity. At most, one can sell units to other investors over the stock exchange.

    [Read: No ‘Fixed Maturity’ For FMPs?]

    So, when an investor invests in an FMP, his/her units are aligned to the overall tenure of the scheme at a pre-defined rate. Hence when the original investor passes away, these units get transmitted to the next of kin, but the actual proceeds are allowed for redemption only on/after maturity.

Remember as a claimant to your family member’s investments, the most important thing about making a claim of any mutual fund units is to follow all procedures and submit proper documents required for it, along with filled requisite forms.

Do ensure that you, as kin of the unit holder, provide a copy of death certificate, investment papers, letter of indemnity, relevant affidavit, succession certificate/letter of administration and an attested copy of probate of a will. Please ensure that the name of your close family member is spelt correctly and it is as per the official documents such as PAN card and Aadhaar and so on. If there is a discrepancy, it could take more than a month to sort the name change issue and this might add to the stressful situation.

Besides, do not forget to provide your KYC details and a letter informing about the demise of the original unit holder’s death to the Fund / AMC / RTA for the redemption of units or close the account or transfer the units and to start the procedure at earliest.

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