Sebi Revamps Mutual Fund Nomination Process: Key Changes & Timeline

New Delhi, Jan 10 (PTI) Markets regulator Sebi on Friday issued guidelines to revamp the nomination process for mutual fund folios and demat accounts to enhance transparency and minimise unclaimed assets in the securities market.

The new norms will come into effect from March 1 and cover a range of measures for investors and regulated entities, including Asset Management Companies (AMCs).

The Securities and Exchange Board of India (Sebi) emphasised that these reforms came from extensive consultations with stakeholders, including a public consultation paper floated in February 2024.

"In order to revise and revamp the norms for nomination for demat accounts and mutual fund (MF) folios and to prevent the generation of unclaimed assets in the securities market, Sebi came out with a consultation paper in February 2024.

Pursuant to the approval of the board for amending the respective regulations, the existing nomination facilities in the Indian securities market are being revised, Sebi said in a circular.

The revised guidelines addressed to entities like AMCs, depositories, and other market participants by introducing significant changes to the rule of survivorship, mandatory nomination for single holdings, and enhanced safeguards for authenticity.

Under the rule of survivorship, assets in joint accounts will be transferred to surviving holders without affecting prior nominations or operational modes.

Further, the markets watchdog also introduced robust measures to verify and validate nominations.

Sebi highlighted new rules to will allow investors to nominate up to 10 persons in the account/folio, with an option to specify percentage allocations for each.

In the absence of any such specification, the assets will be equally distributed among all the nominees. In case of the demise of the investor and any one of the nominees, the regulated entities will distribute the assets on a pro rata basis to the remaining nominees.

The markets watchdog further clarified that nominees will receive the assets as trustees on behalf of the legal heirs of the account holder, with no direct inheritance rights for the heirs of a predeceased nominee.

One of the key features of the revamped system is the inclusion of digital and physical channels for submitting or updating nominations.

For online submissions, investors can validate their nominations through Aadhaar-based e-signs, digital signatures, or two-factor authentication and for offline submissions they require signature verification or thumb impressions witnessed by two individuals.

Further, the regulator restricted entities from demanding documentation, including affidavits or indemnities from nominees during asset transmission to simplify processes. The only required documents will be a death certificate and updated KYC details.

Sebi emphasised the importance of maintaining updated records of nominations by directing the entities to store physical or electronic copies of these records for eight years after the transmission of assets. They are also mandated to acknowledge each submission or update of nominations, regardless of the mode used.

For existing account holders, the guidelines also present an opportunity to revise their nominations or opt-out using a secure online mechanism. This process involves OTP verification and an optional video recording feature for enhanced security.

The regulator has directed AMFI and depositories to implement Sebi's revised nomination norms by February 20. They must confirm the formats of the 'nomination form' and 'opt-out' form, in both physical and digital modes by March 15.
Additionally, they are required to report the implementation status of the circular's provisions by May 1.