Importance of nominee in a mutual fund investment

Providing a nominee may be a simple but important step in making a mutual fund investment. The importance of this step comes in when a nominee or legal heir has to claim the investment proceeds after the death of a mutual fund investor. A joint-holder, nominee or legal heir can claim the proceeds. The process is called transmission.

Asset Management Companies (AMC) have a common procedure for transmission of units, however, there might be a slight variation in formats or documents required across AMCs, but broadly the process is the same.

The nominee or legal heir should submit the required documents along with the letter requesting transmission of units to the AMC. It is necessary to contact every mutual fund house separately where the deceased person had investments.

There can be three situations:

  1. Transmission to surviving joint holders
  2. Demise of sole or all holders, where nominee is registered
  3. Demise of sole or all holders, where nominee is NOT registered.

In all the cases, surviving holders or nominees or legal heirs should submit the following common documents with the AMC.

  1. Letter requesting for transmission of units-It should be in the AMC’s specified format.
  2. Original or duly notarized or attested photocopy of death certificate of the deceased unit holder
  3. KYC confirmation of nominee or claimants or surviving unit holders
  4. New bank mandate in AMCs specified format with attestation from bank branch manager or a cancelled cheque with account number and holder’s name printed on the cheque or bank account statement. The bank mandate has to be given on bank’s letter head or, if on a plain paper, bank branch seal, employee name and number seal should be affixed on it
  5. FATCA self-certification

Now coming to the most important part, while in case of situation 1 and 2 one will require the documents stated above in case of situation 3 where nominee is not registered needs two additional legal documents- Indemnity bond signed by all legal heirs confirming the claimant and individual affidavit by legal heirs. However, if the claim amount is above a certain hurdle limit, the claimant will be required to produce a notarized copy or probated will or succession certificate by a competent court or Letter of Administration, which makes the process harder.

The problem arises if claimant’s name in the identity documents or bank record and AMC’s record do not match. For instance, the identity documents carries middle name and AMC’s record do not or vice-versa, or different spellings. So, while mentioning nominee, make sure the details match the nominee’s identity records. Also, if the claimant is a minor, all stated document of the guardian will be required. If all required documents are in place, the process will take up to 15 days after submission of request letter and relevant documents.

Finally, all these things are possible only if the investor keeps someone informed about his investments. If no one is aware of the investments, the investment will keep lying as unclaimed. So, make sure that you keep the nominee or someone in the loop about your mutual fund investments.

Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 9 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’

Charging up the Electric Vehicle story…

Battery is the most important component of an Electric Vehicle (EV). The EV era would force a paradigm shift and the fortunes can change dramatically depending on how well they adapt to the new reality.

The EV battery should have the following five capabilities: 1. High energy density – the weight of the battery should not weigh over the performance hence lithium scores over others as it has high energy density 2. Design of the battery should be such that it gives maximum range per charge 3. How fast the battery charges 4.How long the batteries can be used before being replaced 5. The cost at which all the above features come in.

The biggest challenge for the battery manufacturers in India is the sourcing of raw material. Lithium is the key raw material for the batteries to be used in EVs. Most of the reserves for lithium are concentrated in South America (~70%). Chile’s Atacama Salt Flat is home to the world’s largest lithium carbonate reserves. Global demand for lithium carbonate is projected to more than triple from 188,000MT in 2016 to 611,000MT by 2035 as per reports. Private entities like the battery manufacturer along with the government need to do strategic investments in these mines for sourcing lithium. As the interest in lithium keeps going up, there would be more exploration to find fresh deposits. Lithium could become the “white gold” for the industry in future. Cobalt is another mineral resource often used in lithium-ion chemistry that could come under strain as EV demand grows.

The choice of a battery design and the chemistry depends on the vehicle type for which the battery is being made for. The industry as of now is getting itself ready with various technologies to provide the optimum source of power to an EV and reduce the price difference between an EV and an internal combustion engine (ICE) vehicle. There are also debates going on regarding the optimal format for charging infrastructure. Discussions revolving around swapping of batteries vs charging station are still on. Each of these methods has its own merit.

Currently the Central Electrochemical Research Institute (CERI) in Tamil Nadu is working on lithium-ion manufacturing in India and has targeted a capacity of 100 units/day. Bharat Heavy Electricals Ltd (BHEL) has entered into a MOU with the Indian Space and Research Organization (ISRO) to develop lithium-ion batteries & Suzuki announced a $184 mn investment for a factory with partners Toshiba Corp. and Denso Corp. in April 2017. How the two leading battery manufacturers in India, Exide Industries Ltd & Amara Raja Batteries Ltd adapt & scale up technologies also needs to be seen.

Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 9 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’

The smart borrower…

As a smart borrower make sure you are taking the loan for the right reasons. Don’t borrow just because the interest rate is attractive or you can claim tax benefits. Here are a few basic rules to keep in mind:

Take on an EMI only if you can afford it: A smart borrower will never bite off more than he can chew. Typically different types of loan EMIs should not be more than a proportion of your monthly income. Your total monthly EMI should never go above 50% of your monthly income. Don’t take into account your future income. Times are bad, and the 10% increment you may have based your projections on could actually be only 6% or even flat, if your industry goes into a tailspin.

Type of Loan Maximum proportion of monthly income (%)
Home Loan 40
Car Loan 15
Personal Loans 10
All Loans 50

Keep the tenure as short as possible: The longer the tenure, the bigger is the interest burden on the borrower. If you take a loan at 9.75% for 10 years, the interest outgo will be 57% of the principal amount. This figure jumps to 91% if the tenure is 15 years and shoots up to 128% for a 20-year loan. In 25 years, the interest outgo is 167% of the principal. Borrowers are tempted to go for long term loans because the EMI is lower and they enjoy tax benefits on the loan. But this is a misconceived strategy because they end up paying a huge interest on the loan.

Take a simple term plan for big ticket loans like home loans: Banks usually try to push customers to buy a reducing cover term plan that covers the outstanding amount. However, a regular term plan is a better option because it continues even after the loan is repaid or if the borrower switches to another lender. Also, insurance policies linked to a loan are typically single premium plans. Regular payment plans are the best way to insure yourself.

Retirement corpus vs child’s education: Don’t dip into your retirement corpus to fund your child’s education. Education loans are easily available and bright students also get scholarships. But nobody is going to give you a loan for your retirement needs. Taking an education loan will not only keep your retirement kitty safe, but also inculcate a sense of fiscal responsibility in the child, who has to repay it. What’s more, education loans also offer tax breaks so the effective cost of the loan comes down.

Increase the EMI gradually to reduce loan tenure: This is the best way to repay say a 25 year loan in 10 years. For example:

Hike EMI by 10% every year Loan ends is in 10 years 2 months
Hike EMI by 5% every year Loan ends in 13 years 3 months
Pay one extra EMI every year Loan ends in 19 years 3 months
If EMI remains constant Loan ends in 25 years

Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 9 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’

Creating a new normal…

The Indian markets have been scaling new highs with NIFTY remaining above 10,000 for over a month. The current rally in Indian market is fuelled by strong liquidity from domestic investors. As strong inflows continue into domestic mutual funds reforms initiated by the Modi-led government reaffirm the faith of foreign investors ( as evident from a rating upgrade from Moody’s) in the India growth story which could well stay for another 7 years.

Domestic mutual funds continue to attract flows from investors with assets under management (AUM) of the industry increasing by Rs.51,148 cr in October to touch a new high of Rs.21.41 lakh cr. As per data from the Association of Mutual funds of India (AMFI), equity-oriented mutual funds (including arbitrage funds), balanced funds and equity linked savings scheme (ELSS) funds saw net inflows of Rs. 21,900 cr in October. In September, these funds saw inflows of Rs.27,077 cr. For the first seven months of the current financial year, cumulative inflows into these funds have tripled to Rs.1.51 lakh cr as compared to Rs.46,840 cr in the same period of the previous year.

Foreign institutional investors (FIIs) who took a break from buying Indian shares in August and September are returning after recent government announcements such as the Rs.2.11 lakh cr PSU bank recapitalization plan. Over October and November so far, FIIs have invested a net of $1.9 bn in Indian equities. US-based Moody’s on 17th November upgraded India’s sovereign credit rating by a notch to ‘Baa2’ with a stable outlook citing improved growth prospects driven by economic and institutional reforms. This is expected to further boost FII investments into India. For the year to date, they are buyers to the tune of $7.4 bn.

September quarter results for most companies have already been declared & results have largely been in line with expectations. After its muted performance in the June quarter due to the transition to GST, India Inc is getting back on track going by the September quarter results. Post GST implementation GDP growth numbers, IIP & PMI index have all taken a hit, how they recover over the next few months will also be closely monitored. With real estate and gold giving subdued returns, investors have been looking at equities as an investment avenue. Thus in spite of the markets reaching all-time highs & rich valuations, strong cash inflows into the equity markets should continue for some time.

The markets seem to be consolidating above the 10000 NIFTY mark. Corporate performance & economic data which comes in H2FY18 will be critical. Last year post de-monetization Q3 & Q4 numbers for most companies & the economy were impacted. Thus the general expectation is that H2FY18 numbers should be significantly better y-o-y. Any correction in quality stocks is a good opportunity for investors to enter or re-enter the stock markets at lower prices if they had missed out previously. Given that the markets are at all-time highs one needs to tread with caution at current levels. For long term investors one should keep accumulating on dips as the markets are braced for significantly higher levels over the next couple of years.

Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 9 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’