On January 10, 2025, the Securities and Exchange Board of India (SEBI) issued a circular (SEBI/HO/OIAE/OIAE_IAD-3/P/ON/2025/01650) to revamp and standardise nomination facilities for Demat accounts and mutual fund folios. The new SEBI nomination rules focus on preventing the accumulation of unclaimed assets, ensuring ease of transmission, and safeguarding investor interests.
The circular mandates that Asset Management Companies (AMCs), Registrars and Transfer Agents (RTAs), Recognised Depositories, and Depository Participants (DPs) comply with these revised norms.
Key Changes in the New SEBI Nomination Rules
1. Rule of Survivorship for Joint Accounts
- Upon the demise of a joint holder, the assets shall be transmitted to the surviving holder(s).
- The surviving joint holder(s) will inherit the assets as owners, not trustees.
- Surviving holders can modify, continue, or cancel the previous nomination.
- If all joint holders pass away simultaneously, the assets will be transmitted to registered nominees.
- If no nominee is registered, the assets will be transmitted to the legal heirs of the youngest joint holder as per intestate succession or will.
2. Nomination Rules for Different Account Types
- In the Hindu Undivided Family (HUF), the new Karta will operate the account upon the Karta’s death. If no Karta is appointed, the transmission will follow dissolution norms.
- Nominees shall receive assets as trustees on behalf of the legal heirs of the deceased holder.
- If a nominee passes away before the investor and no changes are made, the remaining nominees will receive assets on a pro-rata basis.
- If a pledge secures existing credit facilities, the transmission will only occur after obtaining a due discharge from creditors.
- Nomination is now mandatory for single-holder accounts but remains optional for jointly held accounts.
3. Enhancing Nomination Integrity
To ensure authenticity and verifiability, SEBI has introduced new methods for submitting nominations:
A. Online Nomination
- Investors must validate nominations via digital signature, Aadhaar-based e-sign, or two-factor authentication (OTP verification via registered mobile and email).
B. Physical Nomination
- Signature verification will be required.
- If a thumb impression is used, two witnesses must verify it (except in cases where digital or wet signatures are used).
- Investors will receive acknowledgements for all nomination activities, with records retained for eight years post-transmission.
4. Personal Identifiers for Nominees
To strengthen identification, investors must provide:
- Any one of the following:
- PAN
- Driving License Number
- The last 4 Digits of the Aadhaar (only the document number required, not the copy)
- Complete contact details (address, email, phone number)
- Relationship with the investor
- Date of birth (if the nominee is a minor)
Investors can now nominate up to 10 nominees per account/folio. Power of Attorney (POA) holders cannot nominate.
5. SEBI’s Rule for Incapacitated Investors
A significant reform in SEBI’s new circular addresses incapacitated investors—those unable to manage their financial affairs due to health conditions. In such cases, SEBI now permits a nominee to operate the account.
However, this applies only if the investor is physically incapable but still legally competent. A designated nominee (excluding minors) can handle the investor’s account in such instances.
To enable this provision, the investor must pre-authorise a nominee in the nomination form and specify the extent to which they can manage funds—either a fixed sum or a percentage of the total balance.
This change is a significant improvement over the previous system. Earlier, even if a nominee was appointed, they had no authority to act if the investor became incapacitated, necessitating a lengthy legal process to obtain a court order for financial management.
Under SEBI’s updated guidelines, a nominee can immediately assist in managing the investor’s funds without requiring court intervention, streamlining the process and reducing delays.
6. Streamlined Transmission Process
For transmission of assets to nominees, the following documents are required:
- Self-attested Death Certificate of the investor.
- KYC completion or reaffirmation by the nominee.
- Due discharge from creditors in case of pledged assets.
No additional documents will be required, such as affidavits, indemnities, or notarisations.
If legal heirs approach the nominee for asset transfer, the nominee must cooperate in transferring assets, and no disputes shall involve the AMC/DP.
7. Opting Out of Nomination
Investors choosing to opt out must:
- Confirm their decision via OTP-based authentication.
- Submit an acknowledgement form in physical or digital format.
- Complete a video recording to opt-out per SEBI’s video verification norms.
8. Implementation Timeline
The circular comes into effect on March 1, 2025. Existing investors will have the option to revise their nominations accordingly. AMFI and Depositories must:
- Ensure readiness for implementation by February 20, 2025.
- Confirm compliance with SEBI formats by March 15, 2025.
- Report full implementation by May 1, 2025.
Final Words
SEBI’s revised nomination framework aims to reduce unclaimed assets, streamline transmissions, and enhance investor protection. These changes introduce greater clarity, flexibility, and digital facilitation, ensuring investors and their families can easily access financial assets. Mutual fund investors and demat account holders should review their nominations and update them as per the new guidelines to avoid complications in the future.
Contact VSJ FinMart today for assistance with mutual fund investment consolidation (if your investments are scattered) and nomination updates!