Nomination in Mutual Fund and Demat Account- New Rules Announced by SEBI

SEBI has introduced new rules to make it easier for people to inherit assets held in demat accounts and mutual funds. The new rules will simplify the process of transferring assets to beneficiaries after the account holder passes away. Let us look at all the details related to the new rules around nomination in mutual funds and the Demat account.

SEBI's New Rule on Nomination in MF and Demat Account

Here are a few crucial points related to nomination as per new guidelines:

The biggest change is around the maximum number of nominees. The count has been revised from three to ten. Change alteration provides investors with increased flexibility in appointing multiple beneficiaries.
SEBI has introduced regulations permitting nominees to act on behalf of incapacitated investors, with suitable risk management strategies in position to protect the interests of all stakeholders.
Nomination is optional for joint demat accounts and mutual fund folios. Confirmation will be required to opt out of single-held accounts. Investors are allowed to change nominees without any restrictions on the number of updates.
SEBI is focused on streamlining the transmission process to reduce the paperwork burden on nominees. It will streamline and expedite the process for them to inherit assets from deceased investors.
Post the change, nominees will need to provide unique identifiers such as PAN, passport numbers, or Aadhaar for better accuracy and transparency in the nomination process.
Nominees will serve as trustees for the legal beneficiaries of the deceased individual. It is important to note that the legal beneficiaries of a deceased nominee will not hold any rights to the assets. In the event of any pledges, creditors' claims will be given precedence over the transfer of assets.

What is the difference the new STT rule has brought?

Here are the differences the new rule has brought around nominations:

	New Rule	Earlier
Number of nominees	Up to 10 allowed	up to 3 allowed
Unique identifiers for nominees like PAN, Aadhaar, passport number	Identifier documents specified	KYC Identification number (i.e. Pan card/ Aadhaar Card / Passport number) or photo/ signature (in some cases)
Can nominees can act on behalf of incapacitated persons?	Yes	No
Rule of survivorship	Joint holders can become co-owners after one of them dies	Joint holders could become co-owners, only if anyone or survivor was mentioned
Nomination optional for joint holders	Yes	It is compulsory; being weakly practiced before 2010

Impact on investors

Here is how the changes will impact the investors:

Increased Flexibility: Investors can now nominate up to ten beneficiaries for their assets. It will provide them with greater flexibility in choosing who will inherit their assets.
Simplified Asset Transfer: The streamlined nomination process will make it easier for beneficiaries to claim assets in case of the account holder's demise, minimizing delays and bureaucratic hassles.
Protection for Incapacitated Investors: The provisions allowing nominees to act on behalf of incapacitated investors provide additional security and peace of mind for those who may face health challenges.
Enhanced Estate Planning: These changes can be integrated into comprehensive estate planning strategies, ensuring that assets are transferred according to the investor's wishes.

Impact on Aggregators and Brokers

The changes will have direct and indirect impact on the aggregators and brokers in the following ways:

Regulatory Compliance: Aggregators and brokers should be compliant with the new SEBI regulations and provide their clients with accurate information and guidance regarding nominations.
Increased Demand for Advisory Services: As investors become more aware of the importance of nominations, they may seek advice from aggregators and brokers on how to effectively plan for the transfer of their assets.
Opportunities for Digital Solutions: The increased focus on streamlining the nomination process could create opportunities for aggregators and brokers to develop digital solutions that facilitate the process for their clients.

Before you go

The SEBI changes regarding nominations for Demat accounts and mutual fund investments are generally positive, but there could be some potential negative consequences. For example, the option to nominate up to ten beneficiaries could lead to increased complexity in estate planning. Investors may need to carefully consider how to allocate their assets among multiple beneficiaries. If there are disagreements among multiple beneficiaries, it could lead to legal disputes and delays in the transfer of assets. As an investor, you should consult a financial advisor to ensure that your nominations are well-structured and aligned with your estate planning goals.