MFD nomination facility

A mutual fund distributor's income is mostly trail commission — a stream that keeps paying as long as the investor stays invested, with no fixed end date. For a self-employed distributor, that stream often supports a whole family.

Death ends the distributor's work, but AMFI's nomination facility does not let it end the family's income overnight. Every AMC offers distributors a nomination at the time of empanelment, so a nominee — or, failing that, a legal heir — can go on receiving the trail commission the distributor had already earned the right to.

On the death of an AMFI-registered distributor (Chapter 6, section 6.9), commission continues to the nominee, or to legal heirs where no nominee was registered, subject to conditions:

• The commission is payable only on assets procured by the deceased distributor while their ARN was valid — not on business the ARN might have generated after death.
• The distributor's ARN must have been valid, and not suspended, on the date of death.
• No new business can be written under the deceased's ARN, and no new or changed systematic transactions can be registered under it.
• Commission is paid until the AUM under that ARN falls to nil — it is not a fixed payout.
• The nominee need not be an ARN holder to claim the commission, but receives it only as trustee for the legal heirs — the nomination does not make the money the nominee's own.
• A nominee or legal heir cannot transfer the underlying assets into their own name unless the investor specifically asks for that, and even then only if the nominee or heir holds a valid ARN.

AMFI must be informed of the death, with an attested copy of the death certificate, and AMFI in turn notifies every AMC where the distributor was empanelled.

Suresh, an independent mutual fund distributor, dies suddenly with an ARN that has procured Rs 8 crore of AUM across three AMCs, earning roughly Rs 4,00,000 a year in trail commission.

His wife, registered as his nominee, submits the death certificate to AMFI, which notifies the three AMCs. Because Suresh's ARN was valid and not suspended at the time of his death, and the Rs 8 crore was all procured while he held the ARN, the trail commission continues to flow — now to his wife, as trustee for the family, until either the AUM runs down to nil or the investors move their money to a different distributor.

No new SIP can be registered under Suresh's old ARN, and his wife cannot simply move the Rs 8 crore of assets into her own name unless the investors themselves specifically request that transfer — and even then, only if she holds a valid ARN of her own.

Chapter 6 (Fund Distribution and Channel Management Practices), section 6.9, covers the nomination facility, the eligibility conditions for continued commission, and the transmission and transfer-of-AUM procedure in detail. Expect a question on whether commission continues after a distributor's death (it does, under conditions) and on whether a nominee automatically owns the transferred assets (they do not).

• The nominee holds the commission in trust for the legal heirs, exactly as a mutual fund nomination works for unit-holders — it is not an outright gift.
• Only business procured before death, under a then-valid ARN, qualifies. New business under a dead distributor's ARN is never permitted.
• A nominee does not need an ARN to receive commission, but does need one to have the underlying AUM transferred into their own name.
• Payment stops only when the AUM reaches nil, not after a fixed period — unlike many other nomination-based payouts.