When you are investing for the long term, it is not enough to only do the transaction but you must also think about matters of transition. It’s hard to predict what can happen in a span of 10 or 20 years and ensuring a smooth transition of your assets, in case of an untimely event, is something you should do at the time of making your investment.
What you need to do, is think about joint ownership at the time of investing.
Financial securities like mutual funds, portfolio management schemes, equity shares (through a de-mat account) and bonds, allow you to invest with another holder or owner. In the case of some market-linked securities, you can have up to three joint holders.
Joint holding is a must when an adult guardian or parent is investing along with a minor.
In order to be efficient in making these choices, here is what you need to know.
1. Operating in joint holding
When there are more than one owners or holders for an investment, there can be some confusion when it comes to operating the account for fresh investments, redemptions and so on. The norm is that unless expressly specified that only one of the holders can operate the account, it has to be operated with all the joint holders’ signatures. Any changes made in the details of the account will also require signatures of all joint holders.
2. Ease in succession
The biggest benefit of having a joint holder is the ease with which your investments can be transitioned to the joint holder. The caveat is that this is not an automatic transition. If there is a Will, then the details in the Will must also correspond with the joint ownership of assets. If both the Will and joint ownership match, transference can happen without any hold-ups. If there is no Will in place, then the relation to the primary holder may need to be established and if there is any conflict between more than one joint holder or any kin claiming the right to the assets, then the transference may be questioned.
Also, the process of transfer to a joint holder can be done very quickly given that the KYC details would already be in place.
3. Not a replacement for a nominee
Having a joint holder is not a replacement for a nominee. For example, a married couple may want joint ownership or holding for their financial assets and the children could be made nominees. This helps if both parents are in an unfortunate event that can cause untimely death. The nominee is not technically a legal heir, but more like a trustee to the assets and in the absence of any other legal heir, can claim sole rights to the financial assets that get bequeathed to them. A joint holder, on the other hand, is the one the assets gets transferred to if something untoward happens to the primary holder, this is regardless of the nomination status.
4. Taxation status
The tax rules will apply strictly to the primary holder of the securities. Any tax concessions or tax liabilities will lie with the primary holder only. This is important, as joint holders cannot claim any deductions or share any liability with the primary holder. This is not a means of tax efficiency rather joint ownership is primarily about ensuring the smooth transition of assets in the event of an untimely death.
In order to secure a comprehensive financial plan, you must consider having some assets jointly owned and all financial securities with nomination details. This is one of the primary ways to ensure that your family is able to benefit from your smart decisions without undue delay.