SEBI urges investors to nominate by Nov 2024

Nomination is the simpler and inexpensive way to make things easy for one’s near and dear ones to claim the money of their MF folios or demat holdings, expeditiously, through minimal paperwork after the investor’s death.

Nomination is a process in which an investor appoints a person or persons who will receive the investment in case of the demise of the investor. The nominee could be anyone whether it’s a family member, friend or a colleague. Even a minor could be appointed as a nominee and in such instances, a guardian is appointed. Opting out of nomination declares that the investor has decided to not to name any. In such instances, the legal heirs would be eligible for the remaining proceeds at the time of death of the investor.

One must understand that the having been appointed as a nominee doesn’t translate into the right of the asset or MF units upon the death of investor to them but only act as a trustee and transfer funds to the legal heirs. It could simply mean as a caretaker or agent of the asset appointed by the investor. So, per law, nominee acts as a trustee till the assets are transferred to the rightful legal heir. However, a legal heir could also be appointed as a nominee.

So, the regulator has been insisting on the declaration of the nominee or intentionally opting out at the time of investment itself. Accordingly, it has published a circular in July ’21 asking for demat or trading account holders to comply either to declare the nomination or opt out by filling up a declaration form. A similar circular was released for MF also in June ’22. The initial deadline was extended multiple times and now stands at 30th June 2024. Failing which, the investments in the folios or demat accounts will be frozen. This will not allow the investors to transact the existing investments i.e., either to switch or redeem till the necessary details are provided.

A recent consultation paper by the Securities Exchange Board of India (SEBI) on nominations revealed that a staggering 73 per cent of the individually held demat accounts have no nominations declared. Either they’ve consciously opted-out of choosing one or have not declared till now. And about 14per cent of the individually held mutual fund (MF) investments also lacked mentioning of the nominees. While this number stands at 37 per cent and 34 per cent respectively for demat and MF for jointly held accounts.

A further analysis of the data shows that there could be a lack of understanding on the concept particularly with the joint holders as for the same type of holding (joint) there’s a stark disparity between the MF folios and demat accounts with opting out of nomination standing at 14 and 34 per cent respectively. Though the surviving joint holder automatically gets the rights on the investments upon death of one of the other holders, it’s ideal to nominate for a seamless transition in case of simultaneous demise of both the holders.

The regulator, in order to, ease the process of updating the nominee have provided multiple ways both offline and online. The investor could directly initiate updation with the Asset Management Company (AMC) or fund house directly through offline or online submission. Even the Registrar and Transfer Agents like CAMS and KF intech have provided unified online links which allow the investors to verify, update and confirm the nominee details across the folios under them. Also, investors could alternatively, use MF Central platform to make changes for all their folios to the nomination at one place.

Similar facility is provided for updating the nomination in the demat accounts of the investors by broker over their platforms. Many of the service providers have enabled a pop-up facility to update the nomination right upon logging in, so that one mayn’t miss updating the same. Alternatively, one could directly visit the depositories linked to their respective brokers i.e., NSDL and CDSL by visiting their respective portals. The process is seamless with using the client IDs and PAN numbers to generate One-Time Passwords (OTP) and authenticate them to complete the entire process.

Nomination is the simpler and inexpensive way to make things easy for one’s near and dear ones to claim the money of their MF folios or demat holdings, expeditiously, through minimal paperwork after the investor’s death. To claim the units of the death of the investor, the nominee must complete the necessary formalities like KYC process, proof of death of the unitholder, signature of the nominee duly attested, furnishing of proof of guardianship in case of minor nominee, etc.