Back to Basics. MF Folio: How different modes of holding work

After making the decision to invest in mutual funds (MFs), the immediate next step for you is to decide what kind of account would you like to create for holding your MF investments. It is important to understand the holding types, ignoring which can create difficulties in future. There are different modes of holding your MF folios such as single holding and joint holding. Based on one’s preference or situation, a particular type of account or multiple types of accounts can be chosen. Here is a lowdown on MF folio holding modes.

Operational Aspects of MF: Modes of holding and change in bank details  Operational Aspects of MF: Modes of holding and change in bank details  

Modes of holding

MFs can either be held singly, jointly or in the mode of anyone or survivor.

In a single holding account, you will be the sole owner and holder of the account. It is a simple account as you will be the sole decision-maker regardingoperating and redeeming of investments in the account. If you are opening a single holding account, your bank account details and KYC documents will be required. Typically, having a nominee is preferred in such accounts.

You can also create an account jointly held by either two or a maximum of three persons. Here, all account holders have equal rights and authority when it comes to operating the joint account and one can’t take individual decisions. Consequently, the consent and signatures of all the account holders will be required while undertaking any transactions such as purchasing or redeeming MF units. While opening a joint account, PAN, bank account and KYC details are required for all joint holders. Minors not allowed to be a part of joint account.

An Anyone or Survivor account is similar to a joint account since this account too jointly held by two or three account holders as the fund belongs to all of them. However, unlike a joint account, operation of the account and the financial and non-financial transactions can be taken care of by any one of the holders. Permission of the other account holders isn’t required in this case.

Irrespective of the mode of holding, one should either provide nominee for the account or a declaration in case no nominee is supposed to be nominated. The deadline for the same has been extended by September 30, failing which the folios shall be frozen and holders of the folios will not be able to redeem their investment.

Taxation

In case of the single account, the taxation aspect is very straightforward as the sole holder is liable to pay taxes as per the gains realised. In case of jointly held and anyone or survivor accounts in MF folios, the first holder or primary holder will be liable to comply with the taxation aspect — be it paying taxes on realised gains/distributions or taking tax benefit in case of tax-saving schemes.  

What you should do

Singly-held account is not preferred relative to other accounts, as post death of the account holder, the transfer of units to the beneficiaries takes more documentation process. If you feel that decisions have to be collectively taken by both account holders and one should not have the sole authority over the decisions on operating account, it is better to opt for a jointly-held account. However, if one feels that any one of the holders should have the flexibility to operate the account, the anyone or survivor account is recommended. In case of both joint and anyone or survivor accounts, upon death of an account holder, the assets can be transferred to the other surviving account holder in a smooth manner compared with the nomination process. Even in the case of joint and anyone or survivor accounts, nomination is recommended. In the event of the unfortunate death of both account holders, absence of a nominee will make the legal heirs run from pillar to post to claim proceeds.

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