SEBI Revamps Nomination Norms for Demat Accounts and Mutual Fund Folios

The Securities and Exchange Board of India (“SEBI”) issued a circular on January 10, 2025, introducing significant revisions to the norms for nomination facilities in demat accounts and mutual fund folios by amending SEBI (Depositories and Participants) Regulations, 2018 and SEBI (Mutual Funds) Regulations, 1996. The same needs to be complied by all the regulated entities (“RE”).

Key Highlights

Reiteration of Existing Norms

1. Rule of Survivorship:

·     In case of joint accounts, if one or more joint account holder(s) passes away, assets will be transmitted to the surviving holder(s) and the surviving holder(s) will receive those assets as owner(s), not trustee(s).

2. Simultaneous Death of Joint Holders:

·     In case all the account holders simultaneously pass away, the assets will go to the registered nominee(s).

·     If no nomination exists, the assets will go to the legal heir(s) or legal representative(s) of the youngest of the joint holders based on intestate succession or as per the will of the later.

3. HUF Accounts:

·       Upon the death of the Karta (head), the new Karta will manage the account.

·       If no new Karta is constituted, transmission is per the dissolution deed.

4. Nominee's Role:

·         Nominee(s) will act as trustee(s) for legal heirs of the deceased holder(s) for their assets.

·         If a nominee predeceases the investor, their portion is redistributed among surviving nominees.

5. Nomination Guidelines:

·       Nomination will be mandatory for single accounts but optional for joint accounts.

·       Online and offline nomination options must follow strict verification (digital signature, Aadhaar e-sign, or OTP).

6. Recordkeeping and Frequency:

·       RE shall provide in their periodic statement of holding, either the (a) name(s) of the nominee(s) or (b) whether or not nomination has been made by the investor.

·       Records for nomination must be maintained for 8 years post-transmission.

·       In case investor specifies multiple nominees, then the investor needs to specify the percentage share for each nominee. In absence of percentage specification, RE will apportion the assets equally among all nominees.

Revamped Norms

1. Mandatory Information for Nominee(s):

·         The investor needs to mandatorily provide the following information:

                                i.     PAN, Aadhaar (last 4 digits), or driving license number.

                              ii. Full contact details such as residential address, email, telephone/ mobile number,

                             iii.    Relationship with the investor, and

                             iv.     Date of birth (if minor).

2. Multiple Nominees Allowed:

·         Up to 10 nominees can be nominated by the Investor.

3. Handling Incapacitated Investors:

·         Nominees can act on behalf of physically incapacitated investors after following due procedures.

4. Transmission Process:

·         Simplified documentation for asset transfer to nominee(s) including providing (a) self-attested copy of death certificate of the deceased investor, (b) due completion, updating and reaffirming of KYC of nominee(s), and (c) due discharge from creditor(s).

·         Legal heirs can claim assets from nominees, but disputes won’t involve the regulated entities. RE needs to obtain suitable declaration from the nominee(s) while affecting transmission.

·         In case of joint holdings, RE shall seek only death certificate of the deceased from the surviving joint holder.

5. Online Opt-out Option:

·         Investors can opt out of nominations as per the online facility provided by RE. Upon choosing the option to opt out, the investor shall get an OTP. Upon submitting the OTP, investor shall have the choice to either furnish unique acknowledgment number of having submitted the declaration form to opt-out in physical mode with wet signature at any of the office of concerned RE or capture their opting-out through video recording by the RE.

6.     New Nomination Form:

·         A revised form is provided, replacing earlier formats.

7.     Implementation Timeline:

·         This circular shall come into effect from March 1, 2025.

Conclusion

The revised norms aim to simplify the nomination process, enhance investor protection, and reduce disputes over asset transmission. These measures ensure seamless and transparent handling of assets in cases of death or incapacitation, benefiting investors and their families.