Consider these 9 things before investing in mutual funds!

As institutions revamp their financial products to cater to the needs of a generation in the digital age, hurdles regarding the nomination of a live-in partner remain blurry. The situation becomes murkier for the LGBTQ community. As we celebrate Pride month, little do we realise the extent of exclusivity that Indian institutions boast of. If you choose to outlive the traditional realms of this society, something as tiny as selecting a nominee for financial products can get tricky, often unreasonable.

“The financial landscape for live-in partners is bizarre, to state the least. It’s confusing and requires a lot of patience and convincing. We can’t opt for loans together, some banks just don’t give the option to select my partner as a nominee. Live-in couples are, quiet frankly, financially paralyzed but I hope things get better,” Animesh Chowdhary (name changed), an event manager from Delhi, said.

While financial inclusion is the buzzword for digital start-ups, banks, and investment companies, does it really include the freedom to have enough choices? Can you nominate a live-in partner while investing in banking products, insurance, or mutual funds? The answer is blurred and indistinct.

Grey area

“This a grey area – for e.g. in bank accounts, not all banks allow live-in partners to be nominees but some do, mutual funds permit live-in partners to be nominees basis documentation, insurance companies tend to not permit it,” Vishal Dhawan, financial advisor and founder at Plan Ahead said.

Nomination enables the asset holder to nominate (propose or formally enter as a candidate) an individual to claim the proceeds upon his/her death.

“Most products accept nominations of live-in partners provided a declaration of co-habitation is provided. This can get even more tricky for the LGTBTQ+ community,” Shweta Jain, CFP and founder at Investography said.

For banking and loans

Banks generally permit an account holder’s parents, spouse, children, or siblings to be nominees to access the savings accounts, fixed deposits, and bank lockers. For live-in partners, there is neither complete acceptance nor a set of rules to adhere to.

“The account holder is allowed to keep any individual as a nominee in her account, as per her choice basis registration of the nominee in the DA-1 form. Banks do not mandate any proof at the time of registration of the nominee,” Puneet Kapoor, President – Products, Alternate Channels and Customer Experience Delivery at Kotak Mahindra Bank said.

However, in the unfortunate event of the death of the account holder, at the time of claim settlement, the bank must insist on KYC of the nominee to establish her identity and do applicable checks prior to payment of the money, Kapoor added.

In the case of applying for a home loan or car loan, banks largely prefer to grant a  joint loan to married couples, siblings, or blood relations. Live-in partners mostly don’t succeed in getting joint loans as of now.

Insurance products

Similarly, in the case of buying insurance, it’s hard to get a live-in partner nominated for such products because, as Jain pointed, “Health insurance is still easier, however, life insurance may be very tricky as there is no way for insurers to check the validity of live-in relationships.”

Family floater insurance schemes – tailor-made for families – naturally don’t recognize live-in relationships. It’s because these schemes strictly cover relationships that are considered legal in the eyes of the law.

Mutual funds

As far as mutual funds are concerned, live-in couples can provide an undertaking or a letter of co-habitation to declare their relationship and thus offer to nominate partners for financial products.

Clearly, the financial battlefield is chaotic for live-in partners as of now because there is enough ground for various legal disputes. It can get worse if the nomination is challenged by a blood relation of the policyholder.

Will vs. Nominee

“A registered Will confirming who you would like to nominate as the beneficiary of the assets specifically mentioning the reasons for exclusion for biological family members may help in reducing the challenge of the nomination by family members, as a well-drafted will override the nomination,” Dhawan explained.

A Will not only gives name to the leftover wealth of the deceased, but it also plays a massive role in preventing family disputes, legal delays, costs, and other unwanted situations that one may have to deal with.

It is important to note that the nominee is not an owner but a trustee of the money. Hence, even if you’re not allowed to nominate your partner for a financial product, the last option to protect their rights is to name them your legal heir.

Research well

However, Dhawan mentioned that “Since rules are not standardized in many cases, it may be prudent to check with specific institutions on how they permit joint ownership and nominations for live-in couples and LGBTQ+ partners.”