How to ensure that your money goes to the right person
You follow a discipline to investing and do all that is needed to keep you financially fit. This sensible investing approach adopted by you has paid off, and you have seen your wealth grow multifold.
However, there is one aspect to investing that one often ignores. And that is who will take care of your financial asset when you are not around.
Recent reports show that public sector banks in India had unclaimed deposits of more than Rs 35,000 crores as on February 2023. Unclaimed deposits are those which have not seen any activity - either a withdrawal or a deposit, in more than 10 years.
These deposits are then transferred to the Depositor Education and Awareness Fund, maintained by India’s central bank - the Reserve Bank of India.
Similarly, over Rs 5,000 crores lie with the Investor Education and Protection Fund in the form of unclaimed share dividends, interest on bonds and debentures, and 116 crore shares.
A large portion of these deposits, dividends and shares belong to people who have passed away. Their accounts remain dormant because family members are either unaware of these deposits or cannot deal with it, as no one has been named as a nominee.
Why does this happen?
When dealing with money matters, we are all different. Money matters are as much a result of habit as it is of our psychological framework. Not dealing with the nomination of financial assets might not be a direct result of a cognitive bias, but it can be influenced by a combination of cognitive biases and psychological factors. Some of these biases and factors that lead to not completing the nomination process are listed below.
LIKELY CAUSES FOR NOT COMPLETING THE NOMINATION PROCESS
- Procrastination: People often delay making important decisions, like nominating beneficiaries for their financial assets, due to a general tendency to procrastinate. They might think there's always time to do it later, leading to inaction.
- Optimism Bias: This is a cognitive bias where individuals overestimate the likelihood of positive outcomes and underestimate negative ones. In the context of nominating financial assets, optimism bias may lead people to believe that they will live long enough to manage their assets, underestimating the possibility of sudden events that render them incapable of doing so.
- Present Bias: People tend to give more importance to immediate concerns than future consequences. The nomination of financial assets may not seem urgent in the present moment, leading to delayed action or inaction.
- Avoidance of Unpleasant Thoughts: Many people avoid thinking about their own mortality, as it can be uncomfortable and distressing. This may result in a reluctance to nominate financial assets, as doing so would require confronting the inevitability of death.
- Illusion of Control: This cognitive bias refers to the belief that individuals can control events and outcomes in their lives. This may lead them to think that they don't need to nominate financial assets because they'll always be able to manage them themselves
While not dealing with the nomination of financial assets may not be a cognitive bias, it can be influenced by several biases and psychological factors that lead to procrastination or avoidance of the issue.
Once we recognize these biases and determine what is particular to us, we can take appropriate action to ensure the proper management and transfer of assets.
What is a nomination?
It means that you choose a person to receive the funds from your bank account, an investment or insurance proceeds in the event of your demise. This person could be anyone from your family, a relative or even a friend.
Having a nominee ensures that in your absence, the person nominated can access the funds instead of remaining dormant with any financial institution.
The nominee, however, does not get a title or ownership of the assets.
When a nomination is registered, it helps facilitate the easy transfer of funds to the nominee in the event of the demise of an investor. Without a nominee, the heirs/claimants will have to produce a host of documents like a will, legal heir certificate, No Objection Certificates from other legal heirs, etc., to get the assets transferred in their name.
Suppose the nominee, however, is also the legal heir. In that case, they will be entitled to the deceased's wealth, possessions and investments. This entitlement, though, is secondary to the contents of a valid will, if any, which is a legal document created to describe how assets will be distributed after death.
All financial assets have the facility of nomination. You can consult a SEBI-registered investment advisor or the bank/insurance company/provident fund/financial institution/mutual fund/stockbroker to complete the process.
The process to add a nominee to most of your investments is now easy, with most institutions providing the option to do it online. Several instruments, such as mutual funds and insurance, also allow an individual to have more than one nominee.
The Securities and Exchange Board of India recently extended the deadline for completing the nomination process for all trading and demat accounts to September 30 from March 31.
This was done because many brokers said more than 50% of their retail clients had yet to give details.
Some of us delayed adding nominees to our various accounts because we were unsure whom to add. Don't worry about it. You can always change it later.
Complete the nomination process now!
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