SEBI Backs Simplification of Nomination in Financial Assets

Market regulator, the Securities and Exchange Board of India (SEBI), has proposed introducing additional flexibility in the nomination process for mutual fund and direct equity investors.

As per a discussion paper issued on February 2, 2024, the market regulator plans to provide investors the option to add several nominees (a maximum of 999) and offer unrestricted access to the nomination facility for nominee additions and changes, including cancellations.

In addition, SEBI has put forward to make it mandatory to provide nominees’ contact details and personal identifiers such as the name of either parent and government-issued identities to ensure that institutions are able to contact and identify the nominees with ease after the death of the investor.

According to the discussion paper, nominations need to be made, changed, or cancelled in a safe, secure, and verifiable manner by using a digital signature certificate or Aadhaar-based eSign or physical signatures of the investors or via dual authentication.

Besides, some of the other proposed measures include maintaining a record of all the changes related to nominations and access to nominee details via account aggregator service and other routes.

In addition, the market regulator plans to make it mandatory for mutual funds and brokers to provide options to specify guardians.

Investors would also receive options to provide additional details, such as specifying a guardian for minor nominees, in case the nominee (s) can conduct transactions in a scenario where the investor gets permanently or temporarily incapacitated.

The transfer of assets to the nominee will be subject to completion of Know-Your-Customer (KYC) alone and clearance from creditors in case the investor has pledged shares or mutual fund units, as per the discussion papers.

In a scenario where a dispute arises, the nominees and claimants will have to contest among themselves without reference to the depositories, mutual funds and their registrars, as per the discussion papers.

Meanwhile, investors would continue to have the option to ‘opt-out’ when it comes to declaring a nominee.

In July 2021, SEBI brought out a circular whereby it made it mandatory for demat (dematerialised) account holders to declare a nominee or choose to ‘opt out’ of the nomination process.

The deadline, which was stated to be March 31, 2022, has been extended to June 31, 2024. In the case of mutual funds, a similar circular was released in June 2022. After a number of extensions, the deadline has been stated to be June 30, 2024.