How to File a Nomination for Bank Account, Insurance, and Mutual Funds in India

How to File a Nomination for Bank Account, Insurance, and Mutual Funds in India

Nomination is one of the most overlooked aspects of financial planning in India. It means designating a person to receive a financial asset, such as a bank deposit, insurance payout, or mutual fund holding, upon the death of the account holder. Despite its importance, millions of accounts remain without a valid nomination.

A common misconception is that a nominee automatically becomes the owner. The Supreme Court has clarified that a nominee merely holds assets in trust for the legal heirs. Understanding this distinction can prevent prolonged disputes. For more on what happens without a will, see this guide on intestate succession under Hindu, Muslim, and Christian law.

Nominee vs. Legal Heir: Understanding the Difference

The difference between these two roles is widely misunderstood. A nominee is designated to receive the asset upon the holder's death, acting as a custodian. A legal heir is the person entitled to inherit under applicable succession law or a valid will.

The Supreme Court has held that nomination does not confer beneficial ownership; the nominee receives the asset for convenience, but ultimate ownership rests with the legal heirs. If they differ, the legal heir can claim the asset. Those who need to establish their right may need to obtain a succession certificate from the competent court.

Nomination for Bank Accounts

Bank account nomination is governed by Sections 45ZA to 45ZF of the Banking Regulation Act, 1949. These provisions allow the holder of any deposit account to nominate one person who will receive the balance upon the depositor's death.

For a single account holder, the applicable form is Form DA1, while joint account holders must use Form DA2. These forms are available at bank branches and through internet banking portals. To change an existing nomination, Form DA3 is used. The nomination must be attested by a witness.

For joint accounts, nomination takes effect only after all joint holders have passed away. The nominee's right to claim arises only when no joint holder survives.

Nomination for Insurance Policies

Life insurance nomination is governed by Section 39 of the Insurance Act, 1938. The policyholder can nominate any person to receive the proceeds upon death during the policy term, either when taking the policy or at any point during its tenure.

Insurance law recognises two categories of nominees. If the nominee is a close family member (spouse, children, or parents), the nomination is treated as beneficial, meaning the nominee is considered the beneficial owner of the proceeds. If the nominee is anyone else, they act only as a trustee for the legal heirs.

Section 39A also permits assignment of the policy, which transfers all rights, overrides any nomination, and constitutes a transfer of ownership. Nominations can be changed any number of times by written request to the insurer.

Nomination for Mutual Funds and Demat Accounts

SEBI has been tightening nomination requirements. A circular dated June 15, 2022, made it mandatory for all mutual fund folio and demat account holders to either file a nomination or submit an explicit opt-out declaration. The compliance deadline has been extended multiple times. For the latest rules, refer to this overview of SEBI nomination rules for mutual funds and demat accounts.

Investors can nominate up to three persons per folio, with percentage allocations totalling 100%. For demat accounts (NSDL and CDSL), SEBI requires an active choice: nominate or formally opt out. Non-compliance can result in the folio or account being frozen for debits, preventing redemptions or sales.

How to File or Update a Nomination Online

Most banks, insurance companies, and mutual fund AMCs now allow nominations to be filed or updated online. The general process is as follows:

Step 1: Log in to the bank's internet banking portal, insurer's portal, or AMC/depository participant's website.

Step 2: Navigate to the "Nomination" or "Nominee" section, typically under account settings or service requests.

Step 3: Enter the nominee's full name, date of birth, relationship, and address. For a minor nominee, provide guardian details as well.

Step 4: For multiple nominees, specify percentage shares totalling 100%.

Step 5: Authenticate the nomination using OTP sent to the registered mobile number or email. Some platforms may also require Aadhaar-based e-sign verification.

For offline filing, visit the nearest bank branch or registrar and transfer agent (CAMS or KFintech) with a completed nomination form and identity proof.

Multiple Nominees and Minor Nominees

Bank accounts generally permit only one nominee, while mutual fund folios allow up to three. When multiple nominees are designated, the account holder must specify the percentage share each nominee will receive, totalling 100%. If no percentage is specified, the asset is divided equally.

If a nominee is a minor (below 18 years of age), the nomination form requires the account holder to provide the name and address of a guardian who will receive the asset on the minor's behalf until the minor reaches majority. This requirement applies across bank accounts, insurance policies, and mutual fund folios.

Does Nomination Override a Will?

This is one of the most common questions about nominations, and the answer is clear: nomination does not override a will. A will determines how assets are distributed among legal heirs. A nomination is merely a facility to ensure a financial institution can release the asset without requiring a succession certificate or probate order.

If there is a conflict, the will prevails and the nominee must hand over the asset. Without a will, assets follow the applicable personal law of succession. Consistency between nominations and wills is therefore advisable. For guidance on drafting a will, see this resource on making a valid will in India.

Related Reading

The following articles cover related banking and succession topics:

How to File a Complaint with the RBI Banking Ombudsman: Process and Time Limits

How to Obtain a No Objection Certificate from Bank After Loan Closure in India

How to Get a Legal Heir Certificate in India: Process, Documents, and Fees Explained

Key Takeaways

1. Nomination designates a person to receive a financial asset upon the holder's death, covering bank accounts, insurance policies, mutual fund folios, and demat accounts.

2. A nominee is not the legal owner. The Supreme Court has clarified that a nominee holds assets in trust for the legal heirs, except for beneficial nominations under insurance law (spouse, child, or parent).

3. Bank nominations use Forms DA1 (single) and DA2 (joint). Insurance nominations are governed by Section 39 of the Insurance Act, 1938. Mutual fund and demat nominations follow SEBI circulars requiring active compliance.

4. Nominations can be filed or updated online through bank portals, AMC websites, and depository platforms, typically requiring OTP or e-sign authentication.

5. Nomination does not override a will. If there is a conflict, the will prevails. Ensuring consistency between nominations and wills helps avoid family disputes.

6. Minor nominees require guardian details. Multiple nominees in mutual funds require percentage allocations totalling 100%.

Filing a nomination takes only a few minutes but can spare families from months of legal proceedings. Ensuring a valid nomination for every financial asset, aligned with any existing will, is a fundamental part of responsible estate planning.