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SEBI Updates Nomination Rules for Mutual Funds & Demat
Last Updated: 14th January 2025 - 04:21 pm
To enhance transparency and reduce unclaimed assets in the securities market, the Securities and Exchange Board of India (SEBI) has introduced updated guidelines to overhaul the nomination process for mutual fund folios and demat accounts. These new guidelines allow investors to nominate up to 10 individuals for each account or folio, with the option to assign percentage allocations for each nominee.
The revised norms, set to take effect on March 1, 2025, apply to both investors and regulated entities, including asset management companies (AMCs). SEBI emphasized that the reforms were introduced following extensive consultations with stakeholders, including feedback from a public consultation paper released in February 2024. According to the market regulator’s circular, the amendments to the existing regulations aim to streamline the nomination process and strengthen the overall framework.
One key update involves the rule of survivorship, whereby assets in joint accounts will be transferred to the surviving holders without impacting prior nominations or operational agreements. SEBI has also introduced new measures to validate and authenticate nominations to enhance security and transparency. Investors who do not specify allocation percentages among their nominees will have their assets distributed equally. If the investor and one of the nominees pass away, the remaining nominees will receive their shares on a pro-rata basis. Importantly, SEBI clarified that nominees will act as trustees for the legal heirs of the account holder, rather than having direct inheritance rights if the nominee predeceases the investor.
The guidelines include provisions for both digital and physical submission or updating of nominations. Digital submissions can be validated using Aadhaar-based e-signatures, digital signatures, or two-factor authentication, while physical submissions require signature verification or thumb impressions witnessed by two individuals. To simplify the transmission process, SEBI has restricted regulated entities from requesting affidavits or indemnity bonds from nominees. Only a death certificate and updated KYC documents will be required for asset transmission.
The regulator also emphasized the importance of maintaining accurate and updated records of nominations, directing entities to store either physical or electronic copies of nomination records for at least eight years after asset transmission. Regulated entities are required to acknowledge all nomination submissions or updates, regardless of whether they are submitted online or offline.
For existing account holders, the guidelines provide an option to revise nominations or opt-out entirely using a secure online process that includes one-time password (OTP) verification and an optional video recording for additional security. The Association of Mutual Funds in India (AMFI) and depositories have been directed to implement the revised norms by February 20, 2025. They must finalize the formats for the nomination and opt-out forms in both digital and physical formats by March 15, 2025. Additionally, a status report on the implementation of the guidelines must be submitted by May 1, 2025.
These updated guidelines reflect SEBI’s commitment to improving transparency, enhancing investor protection, and streamlining asset transmission procedures across the securities market.
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