The Securities and Exchange Board of India (SEBI) has introduced comprehensive reforms to the nomination process for mutual fund and demat accounts, aiming to enhance transparency and reduce unclaimed assets in the securities market. As part of these reforms, SEBI revamps the existing processes to ensure better asset transmission mechanisms. To implement this, a circular has been issued vide Circular no. SEBI/HO/OIAE/OIAE_IAD-3/P/ON/2025/01650 on 10th Jan, 2025. The circular mandates changes for handling the nomination process, mainly to assure that there is proper transmission of assets after the account holder’s demise and the interests of all investors are safeguarded.
Key Revisions in Nomination Norms:
1. Mandatory Nomination for Single Holdings:
Investors with single-holder accounts are now required to designate a nominee. For joint accounts, nomination remains optional. This measure ensures clarity in asset succession and minimizes disputes.
2. Increased Number of Nominees:
The permissible number of nominees has been expanded from three to ten, providing investors with greater flexibility in estate planning. Investors can specify the percentage allocation for each nominee; in the absence of such specifications, assets will be distributed equally.
3. Enhanced Nominee Identification:
Investors must provide specific identification details for nominees, such as PAN, driving license number, or the last four digits of Aadhaar, along with contact information and the nominee’s relationship to the investor. This requirement aims to ensure accurate identification and reduce fraudulent claims.
4. Digital and Physical Nomination Processes:
SEBI has facilitated both online and offline modes for submitting nomination forms. Online submissions can be validated through digital signatures, Aadhaar-based e-sign, or two-factor authentication, while physical submissions require signature verification or thumb impressions witnessed by two individuals. In essence, SEBI has recognized the wide range of investor preferences and technological capabilities with this approach.
5. Rule of Survivorship for Joint Accounts:
In joint holdings, upon the demise of one or more account holders, assets will be transmitted to the surviving holder(s). If all joint holders pass away simultaneously, the assets will be transferred to the registered nominee(s). In the absence of a nominee, assets will be transmitted to the legal heirs or representatives following prescribed procedures.
6. Nominee as Trustee for Legal Heirs:
Nominees will act as trustees on behalf of the legal heirs of the investor, ensuring responsible management of assets until rightful ownership is established. This provision safeguards the interests of legal heirs and maintains fiduciary responsibility.
7. Provisions for Incapacitated Investors:
SEBI has introduced guidelines allowing nominees to operate accounts on behalf of incapacitated investors, subject to appropriate risk mitigation measures. This ensures continuity in account operations while protecting the investor’s interests. By handling these delicate situations, SEBI hopes to give investors and their families a safety net at times of hardship.
8. Simplified Transmission Process:
To expedite asset transmission, SEBI has reduced the documentation required for nominees. Now, only a self-attested copy of the death certificate and updated KYC details of the nominee are necessary, eliminating the need for affidavits or indemnities. Beneficiaries will have faster access to the assets as a result. This action supports SEBI’s overarching objective of increasing efficiency in financial transactions.
Implementation Timeline:
These revised norms will take effect from March 1, 2025. Regulated entities, including Asset Management Companies (AMCs) and depositories, are required to adopt these changes and report their implementation status to SEBI by May 2025.
Implications for Investors:
To conclude, SEBI revamps its nomination framework that is designed to streamline asset succession, reduce unclaimed investments, and enhance investor confidence in the securities market. Investors are advised to review and update their nomination details in accordance with the new guidelines to ensure seamless transmission of assets to their intended beneficiaries.
For more details of the updated guidelines, please refer to the full circular issued by SEBI. It can be accessed here.
