Multiple Nominees in Mutual Funds:
Who Gets Which Units, and What Happens to the Cost of Acquisition?

A mutual fund portfolio can look simple on the statement. Ten thousand units.

But for tax purposes, those units may actually represent several different purchases made on different dates and at different prices. Now add multiple nominees.

Suppose a parent has 10,000 mutual fund units, with nominee A at 35%, nominee B at 35% and nominee C at 30%, and the units were accumulated through several purchases. Some lots may have been acquired recently and may produce short-term gains on redemption. Older lots may qualify for long-term treatment.

When the investor dies, does each nominee inherit a proportionate share of every purchase lot, or can one nominee receive the older units while another receives newer units?

The answer requires separating three different concepts.

1. Nomination and transmission: how the mutual fund passes the units operationally after death.
2. Succession and beneficial entitlement: who is ultimately entitled to the estate.
3. Capital-gains computation: what cost and holding period the recipient gets when the inherited units are eventually sold.

These should not be collapsed into one issue.

First: transmission itself is generally not a capital-gains sale

When a mutual fund unit passes on the death of the investor through succession or inheritance, the transmission is not treated in the same way as an ordinary sale by the deceased. The capital-gains provisions specifically exclude certain transfers under a will from the definition of a taxable transfer, and the corresponding framework also provides special rules for assets acquired by succession or inheritance.

Therefore, the tax event generally arises when the successor or nominee later redeems or transfers the units, not merely because the units were transmitted following the investor's death.

A nominee does not automatically mean "new cost at the date of death"

This is one of the most important points. Suppose a parent bought a mutual fund unit for ₹100, it was worth ₹300 when the parent died, and the child later redeems it for ₹350. The child should not simply assume the cost is ₹300 because that was the value on the date of death.

The period for which the previous owner held the asset can also be relevant when determining the nature of the successor's capital gain. This prevents a long-held investment from effectively becoming a brand-new investment merely because ownership changed on death.

Now consider multiple nominees

Suppose the deceased investor has nominated the following allocation.

Current SEBI nomination rules permit multiple nominees and require the allocation percentage to be specified. Where the allocation is not specified, the assets are apportioned equally, and the rules also provide for pro-rata distribution among surviving nominees in specified circumstances. The nominees can, following transmission, continue as joint holders or open separate folios for their respective portions.

But there is an important question that the percentage table alone does not answer.

Which underlying units form A's 35%, B's 35% and C's 30%?

That is where the lot-level tax problem begins.

Why the lot matters

Consider this simplified portfolio.

The portfolio has 10,000 units in total, but it does not have one single cost of acquisition. It has multiple acquisition lots. If nominee A receives 3,500 units, the tax outcome can differ substantially depending on which 3,500 units those are.

Scenario A: proportionate allocation

A receives approximately 700 units from Lot 1, 1,050 units from Lot 2 and 1,750 units from Lot 3, carrying a proportional share of the historical cost and acquisition dates.

Scenario B: lot-by-lot allocation

A could instead be allocated particular lots or units under the AMC's operational transmission process. The tax characteristics of A's eventual redemption could then differ materially from those of B or C.

This is why a simple statement saying "A gets 35% of the mutual fund" does not completely answer the capital-gains question.

Does tax law itself require every lot to be divided proportionately?

This point requires care. The Income-tax Act provides the cost and holding-period rules for assets acquired through inheritance or succession. It does not, by itself, function as the AMC's operational instruction manual for physically allocating every mutual-fund acquisition lot among multiple nominees.

The SEBI and AMC transmission framework determines how the units are transmitted, while the Income-tax Act determines how the resulting capital gains are computed when the recipient later transfers the units. One should not automatically state that income-tax law expressly requires the AMC to split every historical lot in exactly the nomination percentage. That proposition is broader than what the tax provisions themselves say.

What if the AMC uses FIFO?

This is where practical problems can arise. Suppose 2,000 units are old and long-term, 8,000 units are recent and there are three nominees. If an AMC's transmission process allocates specific units to nominees in a manner that effectively gives one nominee most of the older units and another nominee mostly recent units, their future tax positions can become very different.

That does not automatically mean the AMC's process is legally wrong. But it creates a legitimate documentation and tax-reconciliation issue over what exact units were transmitted to each nominee, and what historical acquisition cost and date attach to those units. The nominee should not simply accept a new "average cost" generated after transmission if the underlying tax records require historical costs to be carried forward.

Do not confuse transmission after death, which concerns how the inherited units are transferred to the nominees, with redemption by the nominee, which concerns which units are treated as sold when the nominee subsequently redeems units from the holding. FIFO principles may become relevant to the redemption or accounting process depending on how the units are held and reported, but the transmission allocation and the subsequent capital-gains computation need to be analysed separately.

The safest approach: obtain the transmission statement

When a substantial mutual-fund portfolio is transmitted after death, ask the AMC or RTA for a statement showing the following, as far as available.

Keep the deceased investor's original transaction statement as well. Do not rely only on the new nominee's account statement.

Why this matters when one nominee sells first

Suppose three nominees receive the inherited units. Nominee A sells immediately, nominee B holds for another five years and nominee C sells only part of the portfolio. If the historical lots are not properly mapped, reconstructing the correct capital gain later can become unnecessarily difficult.

The problem gets even harder when the original investment was made 10 to 15 years ago, there were SIPs, units were switched between schemes, there were mergers or consolidations, dividend-reinvestment transactions occurred or the original investor had investments across multiple folios. The older the portfolio, the more important the transaction history becomes.

SIPs make the issue even more important

Consider a monthly SIP. A ₹10,000 SIP for five years can create dozens of acquisition lots, so the investor may have 60 or more acquisition dates rather than one purchase date.

If the investor nominates three children in a 40:30:30 ratio, the question is no longer merely who gets 40% of the fund. It becomes how the underlying units and their historical acquisition attributes are represented in the transmitted holdings. For tax purposes, the underlying acquisition history should not simply disappear.

Nominee versus legal heir: another important distinction

A nominee is not simply a tax shortcut around succession law. SEBI's current nomination framework describes nominees as receiving the assets in the transmission process and requires nominees to cooperate in transferring the assets to the legal heirs of the deceased. AMFI's current transmission guidance similarly describes transmission as the process through which units are transferred to a nominee or legal heir, depending on the circumstances.

Families should not assume that the nominee percentage equals final beneficial ownership in every succession situation. A will, succession law, family arrangement and other applicable legal rights can matter separately. The nomination primarily helps the AMC complete the transmission process.

Example: why the difference can become expensive

Suppose a deceased investor has 10,000 units worth ₹1 crore with a historical acquisition cost of ₹40 lakh, and nominates A at 50%, B at 30% and C at 20%. Now suppose the portfolio contains a mixture of old units with large embedded gains, recent units with small gains and some lots that may fall into different holding-period categories.

If the underlying units are not properly mapped, A could end up with a very different embedded gain from B even though the nominal entitlement is 50:30:20. The issue is therefore not just how much each nominee receives. It is also what tax history comes with what each nominee receives.

What should families do before the investor dies?

This is actually the easiest time to solve the problem.

1. Keep an updated nomination. SEBI permits investors to change their nomination, and the nomination applies at the relevant folio or account level.
2. Keep a will. A nomination should be reviewed alongside the succession plan.
3. Maintain a consolidated investment statement rather than depending on one AMC's current dashboard to preserve decades of history.
4. Preserve transaction-level records, including the historical purchase dates and costs.
5. Review old folios, since old investments are often where cost records become difficult to reconstruct.
6. Document intended allocation through the appropriate succession documentation if the family wants particular investments to go to particular children.

What should the nominee do after the investor's death?

The current SEBI framework has simplified parts of the transmission process, including transmission to nominees after submission of the death certificate and completion or update of nominee KYC in the circumstances covered by the framework.

What if the AMC's allocation appears wrong?

Do not immediately sell the units. First ask the AMC or RTA for the basis on which units were allocated among nominees, the unit-level or lot-level holding statement if available, the historical acquisition data, the reason for any FIFO-based allocation and the tax-cost information that will be reflected for each nominee.

Then reconcile that with the nomination, succession documents and tax records. If the allocation creates a material dispute, the issue may require separate legal and tax review. The important point is to resolve the unit-allocation question before a large redemption, because a later sale can make the tax consequences irreversible.

A useful tax record for each nominee

After transmission, each nominee should ideally maintain a schedule like this.

When the nominee later redeems units, this schedule makes the capital-gains calculation much easier to reconstruct.

The key distinction: transmission is not redemption

The death of the investor and the later sale by the nominee are two different events.

In Event 1, death and transmission, the investment moves from the deceased investor to the nominee or legal heir under the applicable succession or transmission process. In Event 2, redemption, the nominee sells or redeems the inherited units. It is at Event 2 that the inherited cost and holding-period rules become critical. The Income-tax Act, 2025 expressly carries forward the previous owner's cost for assets acquired through succession or inheritance.

What this means for families with large mutual-fund portfolios

If a family has ₹50 lakh, ₹1 crore or ₹5 crore spread across mutual funds, the succession plan should not stop at a simple nomination split between the children. That is only the first layer.

The family should also know which folios exist, which schemes are held, how many units are in each scheme, when those units were acquired, what the historical cost was, who is intended to receive them, what the will says, what the nomination says and how the post-death transmission will be documented. That is the difference between nomination administration and proper wealth succession planning.

Bottom line

For multiple nominees in a mutual-fund portfolio, two questions should never be mixed. Who receives what is governed by the nomination, transmission and applicable succession framework. What tax history comes with what is received is governed by the income-tax rules on inherited assets, including the previous owner's cost and relevant holding period.

A nominee does not generally get a fresh cost equal to the NAV on the date of death. At the same time, it is too broad to say that the Income-tax Act itself expressly requires every AMC to split every historical purchase lot proportionately among nominees. The operational transmission and the tax-cost computation are related, but they are not the same question.

For a substantial portfolio, obtain the transmission details, preserve the deceased investor's historical transaction records and reconcile the units and tax attributes before the nominees begin redeeming them.

Reconciling an inherited mutual fund portfolio?

Anmol Aniket and Associates helps families map transmitted mutual fund units back to the original acquisition lots, reconcile nominee allocations against succession documents and prepare the capital-gains working before redemption.

Speak to Our Wealth Advisory Team

Frequently asked questions

Is there capital gains tax when mutual fund units are transmitted after the investor's death?

Generally, transmission on death is not treated like an ordinary taxable sale by the deceased. Capital gains become relevant when the inherited units are subsequently transferred or redeemed.

Does the nominee get the NAV on the date of death as the cost?

Generally, no. The Income-tax Act, 2025 provides special cost rules for assets acquired through succession or inheritance, generally referring back to the previous owner's cost.

If there are three nominees, do they automatically receive equal units?

Not necessarily. The nomination can specify percentages. Current SEBI rules allow multiple nominees and require the allocation to be specified. If it is not specified, equal allocation applies under the prescribed framework.

Does the Income-tax Act require the AMC to split every historical lot proportionately?

The tax law establishes the inherited cost and holding-period treatment. It should not be overstated as an operational instruction requiring every AMC to allocate every historical lot in exactly the nomination percentage.

What if the AMC uses FIFO while transmitting units?

Ask the AMC or RTA for the basis and a detailed transmission statement. The important issue is to identify exactly what units were transmitted and preserve the corresponding historical acquisition information before any redemption.

Can nominees keep the units jointly?

Yes. Under the current SEBI framework, nominees have the option to continue as joint holders or open separate accounts or folios for their respective portions after transmission.

Is a nominee always the final owner of the mutual fund?

Nomination facilitates transmission, but succession rights can involve the will, legal heirs and applicable succession law. SEBI's framework also requires nominees to cooperate in transferring assets to legal heirs.

Official references

• Securities and Exchange Board of India
• Association of Mutual Funds in India

This article is for general information and does not constitute legal or tax advice. The exact treatment of a deceased investor's mutual-fund portfolio can depend on the folio structure, nomination, will, succession law, transmission process, scheme records and the nature of subsequent redemption. For a substantial estate or a disputed transmission, obtain transaction-specific professional advice before redeeming the units.