Nominee vs Legal Heir on Your Indian Demat, Mutual Funds and Bank Accounts: Why the Name on the Form Does Not Decide Who Inherits

You set up your Indian demat account from Dubai a decade ago, named your elder son as the nominee because the form asked for one name and he was the responsible one, and never thought about it again. The portfolio is now worth Rs 1,20,00,000 across direct equity and mutual funds. Your will, written more recently with a lawyer, splits everything equally between your two sons. You assume the two documents do the same job. They do not, and the gap between what your elder son's name on the demat nomination appears to give him and what the law actually gives him is exactly where well-behaved families stop behaving well.

The 30-second answer: A nominee on your Indian demat account, mutual fund folio or bank account is a trustee, not the owner. The Supreme Court settled this in Shakti Yezdani v. Jayanand Salgaonkar, decided December 14, 2023: nomination is not a third mode of succession. On death the depository or fund house transmits the assets to your nominee because the nominee gives a valid discharge, but the nominee holds for the legal heirs named in your will, or under the succession law if there is no will. Nomination decides who the institution pays; the will decides who inherits. So name one son as demat nominee but split your estate equally in your will, and he must share equally. For NRIs the fix is two cheap things done together: refresh nominations (up to ten on demat and folios, up to four on bank deposits) and write a will that names the same people in the same shares.

If you have searched this before, you already know the headline: the nominee is not the owner. What that one line hides is everything that decides whether your investments pass cleanly in a fortnight or get frozen for two years, and a lot of it is specific to an NRI with assets in one country and heirs scattered across others. This guide goes past the slogan. It explains why the trustee rule is now beyond argument after the Supreme Court ruling, how it plays out differently on a demat account, a mutual fund folio and a bank account, what the recently expanded nominee limits do and do not change, how a cross-border estate makes all of this harder, and a worked Rs 1,20,00,000 example showing exactly what your elder son receives and what he owes the rest of the family. It assumes you already hold these accounts; if you are still setting up, the NRI demat account setup guide is the place to start.

The nominee is the person the institution is allowed to pay, not the person who keeps it

The single distinction that resolves most of these fights is this: the nominee is the person the depository, fund house or bank is authorised to release the assets to, not the person who gets to keep them. Indian law keeps those two questions deliberately apart. The institution wants a clean exit. When it transmits holdings to the registered nominee, it is discharged and can never be pulled into the inheritance dispute that may follow between your heirs. That is the entire function of nomination. It is a release mechanism, nothing grander.

This was genuinely unsettled for two decades. A line of Bombay High Court reasoning had suggested that a nomination of shares under Section 109A of the Companies Act, 1956 (now Section 72 of the Companies Act, 2013) could vest ownership in the nominee and override the will. The Supreme Court buried that reading in Shakti Yezdani v. Jayanand Salgaonkar, decided December 14, 2023 (you will see it cited as a 2024 judgment because that is when it was widely reported). The facts were precisely the scenario NRIs walk into: a man left both a registered will and separate nominations on his shares and fixed deposits; the nominees claimed the assets outright, the will's beneficiaries said the will governed. The Court held that nomination is not a third mode of succession. It does not displace testamentary succession (your will) or intestate succession (the personal law that applies when there is no will). The nominee receives so the company or depository gets a valid discharge, then holds for the heirs.

Put plainly, here is what the trustee rule does to three common NRI setups. Name your elder son as demat nominee but leave everything equally to both sons in your will, and both sons own the portfolio equally; the elder son, having received it, is legally bound to transfer his brother's half. Name your spouse as the mutual fund nominee and die without a will, and your spouse receives the units but holds them for all the Class I heirs under the Hindu Succession Act 1956, typically spouse, children and mother in equal shares, not for herself alone. Name the person who is in fact your sole intended heir, and there is no conflict at all; that is the clean case, and it is the one you should engineer on purpose.

There is one carve-out worth flagging precisely, because relatives over-apply it. For a few instruments the nominee historically takes something stronger than trusteeship: a cooperative society membership under certain state laws, and employee provident fund and gratuity nominations under their own statutes. Those exceptions do not travel. For demat securities, mutual fund units, company shares and bank deposits, the trustee rule governs. Do not let a sibling wave the PF logic at your equity portfolio.

How this works differently on demat, mutual funds and bank accounts

The trustee principle is identical across all three. The mechanics, the nominee limits, and the transmission process are not, and an NRI usually holds all three at once, so it helps to take them one at a time.

On a demat account, your shares, ETFs and bonds sit in dematerialised form with a depository (NSDL or CDSL) through your depository participant. On death, the holdings are transmitted (not transferred, which is the word for a sale or gift while alive) to the nominee against a transmission request form, the death certificate, and the nominee's own client master report. Transmission to a registered nominee is usually quick, often within about 7 working days, with no stamp duty and no capital gains event, because transmission on death is not a transfer for tax. The original cost and holding period carry over to whoever ends up owning the shares, and tax only arises when they later sell.

On a mutual fund folio, the units are held with the asset management company through the registrar (CAMS or KFintech), and the nominee process mirrors the demat one: a transmission request, the death certificate, and the claimant's KYC. Many NRIs hold the same fund both ways, some units in a demat and some in a statement-of-account folio, so you can easily have a nominee registered on one and not the other. Check both. A mutual fund SIP set up years ago from abroad may carry a stale or missing nominee even though your demat is current. The NRI SIP setup guide covers the folio mechanics.

On a bank account, the nominee receives the balance, and for an NRI this is where the NRE, NRO and FCNR distinction starts to matter for what the heir can do with the money afterwards, which I come to below. The point for now is that all three, demat, folio and bank account, hand the assets to the nominee as a trustee. None of them decide ownership. Ownership is decided by the will, or failing that by succession law.

The expanded nominee limits help you pre-split, but they do not change who owns

For decades a bank depositor could name exactly one nominee per account, and a demat or folio holder could name up to three. That single-nominee habit is why so many NRIs funnelled an entire portfolio through one child and created the mess this guide is about. Two recent reforms widened the field.

Under SEBI's framework for 2025, you can now register up to ten nominees on a demat account or mutual fund folio, each with a specified percentage, up from the earlier limit of three. And under the Banking Laws (Amendment) Act, 2025, whose nomination provisions came into force on November 1, 2025, you can name up to four nominees on a bank deposit, locker or safe-custody article. For deposit accounts and for demat and folios you can make a simultaneous nomination, allocating fixed percentages that total 100, say two children at 50% each. Lockers and safe-custody articles allow only successive nomination, where you rank people and the next becomes operative only if the one above has died. The bank four-nominee rule explainer and the Supreme Court nominee-as-trustee ruling explainer cover both developments in detail.

Here is the practical effect. If your wealth is mostly in securities, the lever you actually want is the demat and folio nomination, because ten slots with percentages let you pre-split a large portfolio at source, so the depository transmits each child's share directly rather than routing everything through one person who then has to redistribute (and might not). If you have meaningful deposit balances too, use the four-nominee facility there as well.

What none of this changes is ownership. Ten nominees on a demat, four on a deposit, every one of them still receives as a trustee for the legal heirs unless they happen to be the heirs. The reforms upgraded the plumbing. They did not touch who owns the water. Aligning the nomination percentages with the will's shares is what removes the conflict, not the number of slots.

Why an NRI still needs a will after registering every nominee

If the nominee never owns the assets, you might ask why nomination matters at all. Because nomination and a will solve two different problems, and an NRI needs both pointed at the same people.

The nominee solves speed of release. With a valid nominee on your demat, folio and accounts, the institution releases the assets against a death certificate and a short claim form, fast, and for bank deposits now on a clock: under the RBI directions for deceased customers, a deposit claim where a valid nominee exists must be settled within 15 calendar days of complete documents. Demat transmission to a registered nominee typically completes in about 7 working days. No court, no certificate, no months of waiting.

The will solves who keeps it. It is your instruction on ownership, and under Shakti Yezdani it is the instruction that wins over the nomination. Skip the will and ownership is decided for you by the personal law that applies: the Hindu Succession Act 1956 for Hindus, Buddhists, Jains and Sikhs, where Class I heirs share equally; the Indian Succession Act 1925 for Christians and Parsis; the applicable Muslim personal law, with its fixed shares, for Muslims. That default may be nothing like what you intended, and it gives your family no room to honour what you actually wanted.

For an NRI specifically, the will does extra work. Cross-border estates are messy. You may have assets in India and in your country of residence, each with its own succession rules, its own probate court, and its own idea of what a foreign document is worth. The clean approach for most NRIs is a separate will covering Indian assets, drafted to Indian requirements, so an Indian court or institution never has to wrestle with a foreign-format will or wait on a foreign grant of probate. The NRI estate planning and wills guide covers drafting a will that holds up across jurisdictions and the single-will-versus-separate-will decision in depth.

The honest framing is that nomination and a will are the two cheapest pieces of estate planning an NRI can do, they take an afternoon between them, and they must agree. The families that end up in court are almost always the ones where the nomination and the will named different people, or where there was neither.

Your residency changes what the heir can do, not what they inherit

Indian succession law is indifferent to your passport. An OCI card, a foreign citizenship, thirty years abroad, none of it shrinks or enlarges an heir's share. An NRI child and a resident child take exactly equal shares of an Indian portfolio under the Hindu Succession Act. The difference between them is not how much they inherit; it is what FEMA lets them do with it afterwards, and that is where the real NRI content sits.

When a resident heir inherits Indian shares, units or a balance, the assets simply move into a resident demat or resident account. No repatriation question, no USD 1 million cap, no Form 15CA. When an NRI or OCI heir inherits, FEMA's non-resident rules attach. Inherited shares and units are transmitted into the heir's NRO demat, on a non-repatriable basis by default; an NRI cannot park inherited Indian securities in a resident demat. Inherited deposit balances are credited to the heir's NRO account. And inherited NRE or FCNR balances are the case worth knowing cold: because that money was foreign-sourced, its freely repatriable character follows it to the NRI heir and sits outside the NRO cap.

From the NRO account, an NRI or OCI heir can repatriate up to USD 1 million per financial year (April 1 to March 31), net of Indian taxes, with no RBI approval below that ceiling, against documentary proof of inheritance (a will, a succession certificate, or a legal heir certificate). Two facts NRIs routinely get wrong. First, inheritance is not income. India abolished estate duty in 1985 and has no inheritance tax, so receiving the portfolio creates no tax bill in itself; what is taxable is what the assets earn (dividends, interest) and any capital gain when the heir later sells. Second, the USD 1 million ceiling is per person, per financial year, but it is a single pooled bucket, so a large estate split across two or three NRI children can leave India faster, because each child remits from their own NRO account against their own share. The detail lives in the NRI inheritance and estate tax guide and the selling inherited property tax guide.

Why does an heir's NRI-versus-resident status even need to be established? Because it is fixed by the day count under the residency rules, and it determines which account the assets land in and what repatriation applies. If you are unsure where an heir falls, the NRI residency and RNOR rules guide sets out the test.

Worked example: a Rs 1,20,00,000 portfolio, one nominee son, a will that splits equally

This is the scenario in the opening, with the arithmetic put on it, because the cost of a careless nomination is easiest to see with money attached.

Mr Rao, an NRI in Dubai, holds an Indian investment portfolio worth Rs 1,20,00,000, split as Rs 70,00,000 of direct equity in his NRO demat and Rs 50,00,000 of mutual fund units across two folios. Years ago, when each form asked for a single name, he registered his elder son, Arjun, as the sole nominee on the demat account and on both folios. His will, written later with a lawyer, leaves his estate equally to his two sons, Arjun and Karan, both NRIs in Canada. He dies without ever updating the nominations.

What the institutions do. The depository transmits the Rs 70,00,000 of shares to Arjun's NRO demat against the transmission request, death certificate and Arjun's client master report, inside about 7 working days. The fund houses transmit the Rs 50,00,000 of units to Arjun's folios on the same basis. The institutions are now done. They have their discharge, and neither can ever be dragged into a dispute between the brothers. On paper, Arjun holds the entire Rs 1,20,00,000.

What the law actually says Arjun owns. Arjun is a trustee, not the owner. Under the will, Arjun and Karan each own Rs 60,00,000 of the portfolio. Arjun, having received the lot as nominee, is legally obliged to transfer Rs 60,00,000 of value to Karan, whether as Rs 35,00,000 of the shares plus Rs 25,00,000 of units, or by some other split the brothers agree, so long as Karan ends up with half. Transmission on death triggered no capital gains tax, because it is not a transfer; the original cost and holding periods carry over to each brother, and tax appears only when either of them later sells his half. If Arjun cooperates, the family settles in weeks and the only cost is the paperwork to re-register Karan's share.

The dispute, if Arjun refuses or if there had been no will. If Arjun decides the nomination makes the assets his, Karan can sue to recover his Rs 60,00,000, with the will and Shakti Yezdani squarely behind him, and Karan will win, but only after a civil suit that can run for years and cost real money, while the portfolio sits contested. Worse is the version where Mr Rao left no will at all. Then the nomination still gives Arjun nothing as owner; intestate succession under the Hindu Succession Act 1956 divides the estate equally between the two Class I heirs anyway, so the outcome on shares is the same Rs 60,00,000 each. But proving who the heirs are now requires a succession certificate from an Indian civil court (the right instrument for securities), which for an estate of this size takes three to six months and court fees set as a percentage of the estate, with both brothers having to coordinate apostilled documents from Canada. The nomination did not avoid any of that, because a nomination never decides ownership.

The clean version Mr Rao could have engineered. Had he simply used the expanded nominee facility and registered Arjun and Karan as nominees at 50% each on the demat account and on both folios, the depository and fund houses would have transmitted Rs 60,00,000 of value to each son directly, nominee and owner would have matched the will, and there would have been nothing to redistribute and nothing to dispute. One round of updated forms, taking an afternoon, would have removed the entire risk. As NRI heirs, each son receives his inherited securities into his own NRO demat and can repatriate sale proceeds later up to USD 1 million per financial year against proof of inheritance, well within reach for a Rs 60,00,000 share unless sold in the same year as other large remittances.

The lesson is not subtle. A stale single-name nomination put Rs 1,20,00,000 in one son's hands first and made the second son's half depend on either goodwill or a lawsuit. Aligning the nominations with the will, using the slots the rules now give you, makes the problem disappear before it starts.

Edge cases

A handful of situations account for most of the surprises, and they are worth holding in mind because the general rule has real exceptions.

Joint holding with survivorship. Where you hold a demat account, folio or bank account jointly on an "either or survivor" or "former or survivor" basis, the surviving holder keeps operating the account after the first holder dies, the deceased's name simply removed against the death certificate. But survivorship is not ownership either. The survivor holds the deceased holder's share as a trustee for that holder's heirs, on the same logic as a nominee. Survivorship determines who controls the account next, not who owns the deceased's portion. For investments you genuinely want a specific person to own, the joint mode is not a substitute for the will.

No will and intestacy. Die without a will and ownership is decided entirely by the personal law that applies, regardless of any nomination. For Hindus, Buddhists, Jains and Sikhs, the Hindu Succession Act 1956 splits the estate among Class I heirs equally; if there is no Class I heir, it moves to Class II. For Christians and Parsis the Indian Succession Act 1925 governs. The nominee still merely receives and holds. Intestacy is also where the slow, expensive court route (succession certificate, letter of administration) becomes hard to avoid for securities and larger balances.

Personal law differences. The equal-share intuition is a Hindu Succession Act feature. Muslim personal law does not divide equally; it assigns fixed fractional shares to specified relatives (for instance, a son typically takes twice a daughter's share), and a Muslim can ordinarily will away only up to one-third of the estate without the consent of the heirs. So a Muslim NRI cannot assume an equal-split will behaves the way a Hindu NRI's would, and should take advice on how nomination, will and the personal-law fractions interact. Christians and Parsis follow the Indian Succession Act 1925, with its own scheme.

Multiple nominees, mismatched percentages. Registering ten nominees on a demat or four on a deposit is only useful if the percentages match the will. If your demat nomination says 60/40 between two children but the will says 50/50, the nomination decides who the depository pays first, and the will decides who ultimately keeps what, so the over-paid child holds the excess as a trustee for the other. Set the nomination percentages to mirror the will exactly, and update both together whenever circumstances change.

Probate. Probate validates a will; a letter of administration is granted where there is no will or no named executor. Probate is mandatory for wills falling under the original jurisdiction of the Bombay, Calcutta and Madras High Courts; elsewhere it is often not strictly required, though a depository, fund house or bank may still ask for it on a large estate. For securities specifically, where there is no will, the instrument a court issues is usually a succession certificate under the Indian Succession Act 1925, purpose-built for debts and securities, and that is what an institution will demand for a sizeable holding with no nominee and no will.

The closing read

Strip it to the slogan and then go past it. A nominee on your Indian demat account, mutual fund folio or bank account is a postman, not an heir. The depository, fund house and bank will hand your investments to your nominee quickly and cleanly, which is precisely why you should register one, and keep it current, on every account, folio and demat you hold, and why you should use the expanded facilities, up to ten nominees on demat and folios, up to four on bank deposits, to pre-split larger holdings at source. But the nominee does not own the assets. Ownership is decided by your will, or, failing that, by the succession law that applies to you, and the Supreme Court closed that debate for good in Shakti Yezdani.

For an NRI, two further truths follow. Your residency does not change an heir's share, only the plumbing for moving the proceeds: inherited securities land in an NRO demat, inherited cash in NRO, NRE and FCNR money keeps its repatriability, and each heir can take up to USD 1 million a year out. And there is no Indian inheritance tax to fear; only the income the assets produce and the gains on a later sale are taxable.

So do the two cheap things now, this month, not someday. Register or refresh your nominees on every demat account, folio and bank account, with percentages that mirror your will, and write a will, ideally a dedicated Indian-assets will, that names the same beneficiaries in the same shares. The estates that turn into litigation are almost always the ones where the nomination and the will pointed in different directions, or where there was neither. If yours is a large portfolio, a blended family, or assets spanning India and your country of residence, that is the point to pay a lawyer to draft the will properly, not to lean on a blog, this one included. Do not leave your family the version of this problem that ends in a courtroom while your Rs 1,20,00,000 sits frozen.

Related guides

• NRI estate planning and wills
• Nomination and succession for NRI bank accounts and demat
• The Supreme Court nominee-as-trustee ruling, explained
• The bank four-nominee rule from November 2025
• NRI inheritance and estate tax
• Selling inherited property as an NRI: the tax
• NRI demat account setup
• NRI portfolio and asset allocation
• Setting up an NRI SIP from abroad
• NRI retirement planning across two countries
• NRI residency and RNOR rules
• Investments guides hub

Disclaimers

This guide is general information for NRIs and OCIs, current as of June 2026, and is not legal, tax or financial advice. Succession is governed by the personal law applicable to the deceased and by the facts of each estate; nomination and transmission rules are set by SEBI circulars, depository and registrar rules, the RBI directions, the Banking Laws (Amendment) Act, 2025, and FEMA, all of which change. Court requirements for succession certificates, probate and letters of administration vary by jurisdiction within India. Repatriation limits and Form 15CA/15CB (renamed Form 145/146 from April 1, 2026) requirements are statutory and bank-specific in execution. The treatment of nomination, wills and intestacy differs materially across the Hindu Succession Act 1956, the Indian Succession Act 1925 and Muslim personal law. Confirm the current position with your depository participant, your fund house, your bank, a chartered accountant and a lawyer before acting on any estate, nomination, transmission or repatriation.