The capital market regulator has further harmonised the nomination rules between mutual funds (MF) and demat accounts. On September 30, the Securities and Exchange Board of India (SEBI), at its board meeting, allowed the holder of both instruments to include up to 10 nominees.
This change was made during a board meeting in Mumbai on September 30. The new rules will also allow nominees to act on behalf of investors who are unable to do so, with some safeguards in place. Additionally, the process for transferring assets to nominees will be streamlined, requiring less paperwork.
The market regulator stated that it would also streamline the transmission process for joint holders with minimal documentation. The unique identifiers for nominees to be obtained will be either PAN, Passport number or Aadhar.
The nominees to whom the investments will be transmitted will act as trustees for the legal heirs of investors. The rule of survivorship will be applicable in case of joint holdings. Some specific norms will be made for the operation of accounts in the event of the death of the Karta in a Hindu Undivided Family (HUF).
No rights will be granted to the legal heirs of the deceased nominee and creditors’ claims will take precedence over transmission of assets to nominees, if previously pledged.
The nomination will be optional for joint demat accounts and for jointly held mutual fund folios. For the singly held accounts, the opt-out shall require due confirmations as may be specified. The guidelines for providing, changing and ensuring the integrity, authenticity and verifiability of nominations will also be made.
There will be a provision for acknowledging nominations and maintaining the records. An investor can change the nominee multiple times as there will be no limit on the number of times a nominee can be changed.
The details and information of nomination will be provided to the investor and the allotment of assets to surviving nominees will also be clarified. An option to specify guardians for minor nominees will also be available.
In an earlier circular, Sebi, in order to simplify compliance for stock and mutual fund investors, announced that the demat accounts and mutual fund folios will no longer be frozen due to non-submission of nomination.
The circular highlighted that the non-submission of ‘choice of nomination’ will not lead to freezing of demat accounts and mutual fund folios.
In this circular, Sebi had also encouraged all existing investors and unitholders to provide a ‘choice of nomination’ to ensure smooth transmission of securities and to prevent the accumulation of unclaimed assets in the securities market. Investors were needed to fill in three mandatory fields when updating nomination details. These include the name of the nominee, the share of each nominee, and the relationship with the applicant.
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