SEBI’s New Guidelines on Nomination for Investors: Key Details Simplified

SEBI's new nomination guidelines, effective March 1, 2025, streamline processes, allow up to 10 nominees, mandate nominations, and enhance transparency in asset transmission.

The Securities and Exchange Board of India (SEBI) has introduced new guidelines regarding the nomination process for security market investors, including those investing in mutual funds (MFs). These changes will come into effect from March 1, 2025, and aim to streamline and regulate the nomination process while adding certain safeguards for investors. Here’s a breakdown of these new rules in simple terms:

Up to 10 Nominees Allowed

• Investors can now appoint up to 10 nominees for their demat accounts and mutual fund folios.
• Investors must specify the proportion of their holdings for each nominee. If no proportion is mentioned, the holdings will be divided equally among all nominees.

Opting Out of Nomination

SEBI has made opting out of nomination a bit more involved:

• Online Option: Investors can opt out by entering an OTP received on their registered mobile number.
• Physical Option: Investors must fill out a declaration form, physically sign it, and submit it to the Registrar and Transfer Agents (RTAs) or the Asset Management Company (AMC) office.
• Video Confirmation: Alternatively, investors can confirm their decision to opt out through a video recording facilitated by the AMC.

Mandatory Nomination for Single Holding Folios

• It is now mandatory to appoint a nominee for single holding folios.
• For joint holding folios, nomination is not mandatory as the surviving joint holders will automatically inherit the assets.

Rules for Joint Holdings

• Surviving joint holders can change or cancel existing nominations.
• If all joint holders pass away, the MF units will be transferred to the registered nominee. In the absence of a nominee, assets will be passed on to the legal heir of the youngest joint holder or as per the Will.

Special Situations

• If the Karta of a Hindu Undivided Family (HUF) dies, the transmission of assets can proceed based on a dissolution deed.
• Nominees act as trustees and do not inherit the assets outright.
• If a nominee passes away before the investor, the nominee’s legal heir is not entitled to inherit the assets.

Making and Changing Nominations

• Investors can make nominations online using digital signatures, Aadhaar-based OTP, or two-factor authentication.
• Physical nominations require AMCs to verify signatures, and thumb impressions must be authenticated by at least two witnesses.
• There is no limit on how many times an investor can change nominations.
• AMCs will include nominee details in periodic account statements for transparency.

KYC Requirements for Nominees

• During the Investor’s Lifetime: There is no need for nominees to complete KYC.
• After the Investor’s Death: Nominees must complete the KYC process to claim assets. If there are multiple nominees and some have not completed KYC, the assets will be distributed to those who have, while the rest will remain in the MF folio until KYC is completed.

Personal Details of Nominees

• Investors must provide personal identifiers for nominees, such as PAN, driving license, and the last four digits of their Aadhaar number.
• Power of Attorney holders cannot appoint nominees.

Special Provisions for Incapacitated Investors

• AMCs can allow nominees (except minors) to operate the folio on behalf of incapacitated investors.
• Investors can specify the maximum value of assets a nominee can redeem.
• AMCs must send an officer to the incapacitated investor to verify their condition and collect a medical certificate.
• The Association of Mutual Funds in India (AMFI) will establish a standard operating procedure for such cases.

Transmission of Assets

• If assets are transferred to legal heirs, they must provide a declaration agreeing to cooperate for the transmission of assets to other legal heirs, either voluntarily or when approached.

Conclusion

These new SEBI guidelines aim to make the nomination process more structured and transparent while safeguarding the interests of both investors and their nominees. Although the process of opting out of nominations is more cumbersome, the additional steps ensure clarity and reduce disputes in asset transmission. Investors should update their nomination details before March 1, 2025, to align with the new requirements and ensure their investments are secure and appropriately directed in case of unforeseen events.

Disclaimer: The article is for informational purposes only and not investment advice.