To enhance transparency and minimise unclaimed assets in the securities market, the Securities and Exchange Board of India (SEBI) has issued guidelines to revamp the nomination process for mutual fund folios and demat accounts. It includes allowing investors to nominate up to 10 persons in the account or folio, with an option to specify percentage allocations for each.
The new norms will come into effect from 1 March 2025 and cover a range of measures for investors and regulated entities, including asset management companies (AMCs).
SEBI emphasised that these reforms came from extensive stakeholder consultations, including a public consultation paper floated in February 2024.
Pursuant to the approval of the SEBI board to amend the respective regulations, the existing nomination facilities in the Indian securities market are being revised, the market regulator says in a circular.
The revised guidelines have introduced significant changes to the rule of survivorship, mandatory nomination for single holdings and enhanced safeguards for authenticity.
Under the rule of survivorship, assets in joint accounts will be transferred to surviving holders without affecting prior nominations or operational modes.
Further, SEBI also introduced measures to verify and validate nominations.
SEBI's new rules will allow investors to nominate up to 10 persons in the account or folio, with an option to specify percentage allocations for each.
"In the absence of any such specification, the assets will be equally distributed among all the nominees. In case of the demise of the investor and any one of the nominees, the regulated entities will distribute the assets on a pro-rata basis to the remaining nominees," the market regulator says.
SEBI further clarified that nominees will receive the assets as trustees on behalf of the legal heirs of the account-holder, with no direct inheritance rights for the heirs of a predeceased nominee.
One of the key features of the revamped system is the inclusion of digital and physical channels for submitting or updating nominations.
For online submissions, investors can validate their nominations through Aadhaar-based e-signs, digital signatures, or two-factor authentication and offline submissions require signature verification or thumb impressions witnessed by two individuals.
Further, to simplify processes, the regulator restricted entities from demanding documentation, including affidavits or indemnities from nominees during asset transmission. The only required documents will be a death certificate and updated know-your-customer (KYC) details.
SEBI emphasised the importance of maintaining updated records of nominations by directing the entities to store physical or electronic copies of these records for eight years after the transmission of assets. They are also mandated to acknowledge each submission or update of nominations, regardless of the mode used.
For existing account-holders, the guidelines also present an opportunity to revise their nominations or opt-out using a secure online mechanism. This process involves one-time password (OTP) verification and an optional video recording feature for enhanced security.
The regulator has directed the Association of Mutual Funds in India (AMFI) and depositories to implement SEBI revised nomination norms by 20 February 2025. They must confirm the formats of the 'nomination form' and 'opt-out' form, in both physical and digital modes by 15 March 2025.
Additionally, they are required to report the implementation status of the circular's provisions by 1 May 2025.