The Hindu : Business : Nomination for investments by HUF

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Monday, Oct 01, 2007
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Nomination for investments by HUF

I am a karta of a Hindu Undivided Family (HUF). Now that I am a senior citizen, I would like to nominate my son for investments of the HUF. There is no column for such nomination. This would result in difficulty in the realisation of the investments in case of my death before maturity. In view of the SEBI Circular, a demat account cannot be held by a HUF. After all, banks, mutual funds and companies are not put to any jeopardy, if they accept nomination, since they would be saved from the bother of identification of the successor. It is likely that they may insist on a succession certificate, which involves time and money. I do think that such a restriction amounts to discrimination of HUF as against other classes of investors. I would appreciate if correct legal position is clarified and bar against HUFs is removed on a proper appreciation of law as well as the need for ensuring succession without hassles.

It is true that nomination for an investment in the name of the HUF is not accepted by most of the institutions.

Some of them as in the case of depository account do not accept even the account in the name of a HUF. But the karta investing funds of the HUF can open such an account or make such investments in his individual name.

There is no bar in law for the same. Merely because it is invested in individual name, it does not mean that it becomes the property of the individual.

He can still account the income as that of the HUF for income-tax purposes as long as he can identify the source of investment as from Hindu joint family. It is also usual and it is not impermissible in law for the joint family investments to be made in the name of any member of the family.

Nomination in the name of any other member of the family would, therefore, be valid in law.

If there is any inhibition in accepting such nominations, the information as to the next senior-most karta could be obtained with the application form making it clear that in the event of death of the karta, the payment will be made to the next in line as indicated in the application form. As otherwise, it does put the HUFs into a disability as regards prompt realisability of investment in the event of death. This is a matter, which requires consideration in view of large amounts of investments available from this class of investors.

S. RAJARATNAM

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