While making an investment we often come across questions like
- Should I invest in mutual funds on my own name or on the name of my wife or invest jointly with my spouse?
- What are the different modes of holding in mutual fund investments?
- What are the pros & cons of investing money in mutual funds on a single name or joint name?
Should I use my money to buy a mutual fund on the name of my spouse?
Spouse is considered as a partner of all the joy and sorrow of life. Being together in life most of them may prefer to invest on the name of spouse or make the investment on joint names. It is good to invest on the name of spouse to secure their financial freedom.
A person may think to invest in Fund schemes on the name of spouse to save the tax liability also. This is not a wise idea because now all the investments are linked with the Pan. Any earnings made on such investments are clubbed with the earnings of the person who made the payment for such investments.
Most of us make a joint investment to extend the feeling of ownership to the spouse in the investment. It gives a sense of security also in case of any unforeseen circumstances.
We will discuss the benefits and limitations of such investments but before that let us understand what are the different Mode of holding in Mutual fund investments?
Different Mode of holding in Mutual fund investments
Investments in mutual funds can be held either in Single name or Joint names. The investor should specify the mode of holding at the time of investment. Investment made on single name is called single Holding and made jointly with two or maximum upto three names, it is called Joint Holding.
Single Holding: Investment will be made on the name of a single person only. This investor is called Sole Holder. Only Sole holder will be authorised to make investment, redemption, switch or other incidental transactions of such mutual fund investments. Sole holders should be KYC compliant.
Joint Holding: Investment will be made on joint names limited to maximum three account holders. A minor cannot be a joint account holder. All the joint account holders should be KYC compliant. All holders need to sign the papers jointly towards investment, redemption, switch and all other incidental matters. In case of joint holdings with instruction of any one or survivor- any holder can sign the papers towards investment, redemption, switch and all other incidental matters.
All communications and payments like dividends, redemption by the mutual fund are made to the first unit holder only.
As far tax benefits are concerned, holding joint accounts do not provide a tax advantage. Simultaneously the taxes on interest or earnings are payable by the first holder.
Pros & Cons of Joint Mode of holding in Mutual fund investments
- All the joint holders have equal authority on investment. Joint holding allows investors to get a collective control over the investment because any of the account holders do not take a unilateral decision without consent of the other joint holders.
- Mutual fund units can be easily transferred to the remaining account holders in case of death of one of the account holders. Remaining account holders need to submit the death certificates and complete other formalities as specified by the AMC for this purpose.
- The “either or survivor” mode is helpful for those that wish to transfer the ownership to their spouse on their death. It makes the operation of investment more convenient.
- Buying and selling of units and some other transactions process becomes will require signatures of all the account holders. If one of the joint account holders is not available to sign the documents, it is difficult to get even a minor change like change in the communication address.
- First holder of the account is eligible for communications and payments like dividends, redemption made by the mutual fund. The rights of the surviving joint holder(s) are superior to that of the nominee at the time of the death of a joint holder. A nominee will only be entitled to the units on the death of all the joint holders.
- Only first holder can avail the tax benefit.