SEBI's New Rule Starting March: Mutual Fund Investors Can Nominate Up to 10 Members

The Securities and Exchange Board of India (SEBI) has implemented new guidelines aimed at simplifying the process of asset transfer in mutual fund and demat accounts. The changes, effective from March 1, 2025, are particularly significant for investors in terms of their ability to nominate up to 10 individuals, along with allocating specific asset percentages to each nominee. These measures are expected to offer a clearer and smoother process, especially in the event of unforeseen circumstances, such as the investor’s illness or death.

Key Changes Investors Need to Know

1. Up to 10 Nominees for Mutual Fund and Demat Accounts

   • SEBI’s new rule allows investors to nominate up to 10 individuals for their mutual fund and demat accounts. Not only can investors nominate multiple individuals, but they can also allocate specific percentages of their assets to each nominee. This allocation provides greater clarity in terms of how assets will be distributed among the nominees.

2. Mandatory Nomination for Single-Holders Accounts

   • For single-holder accounts, providing a nominee will become mandatory. This measure ensures that in the event of an unforeseen circumstance, such as the investor’s demise, the assets held in the account won’t remain unclaimed. This is a crucial step to protect the interests of the investor's heirs and beneficiaries.

3. Detailed Information for Nominations

   • The new guidelines require investors to provide more detailed information about their nominees. This includes identification information such as PAN numbers, Aadhaar (the last four digits), or a driving license number. Additionally, investors must provide contact details and the relationship between them and the nominee, ensuring that the nomination process is transparent and traceable.

SEBI’s Reforms: Aims and Impact

SEBI’s primary goal behind these changes is to reduce the number of unclaimed assets in the securities market. In the event of an investor’s illness or death, the comprehensive nomination process will allow for a seamless and clear transfer of assets. The reforms will ensure that assets are distributed as per the wishes of the investor and will reduce the legal complications often faced by family members and heirs.

4. Survivorship Rule for Joint Accounts

   • In joint accounts, the assets will automatically transfer to the surviving account holders without affecting previous nominations or operational modes. This rule simplifies the transfer process for joint account holders, ensuring that the process remains efficient even in cases where one of the account holders is no longer able to manage the account.

How to Submit Nominations

SEBI’s new rule makes it easier than ever to submit nominations for mutual fund and demat accounts. Investors can choose between online and offline submission methods.

• Online Submissions:

  • For online nominations, entities will validate the process using digital signature certificates or Aadhaar-based e-signatures. This online submission ensures convenience and security for investors.

• Offline Submissions:

  • Investors who prefer the traditional route can still submit physical nomination forms. This option provides flexibility for those who are not comfortable with online submissions.

Once a nomination is submitted, investors will receive an acknowledgment regardless of the submission method. This acknowledgment serves as a proof of submission, ensuring that the nomination process is completed correctly.

5. Record Maintenance by Regulated Entities

   • Entities regulated by SEBI are required to maintain records of nominations and acknowledgments for a period of up to eight years following the transmission of the folio or account. This ensures that there is a clear, documented trail for all nominations and subsequent transactions.

The Importance of SEBI’s Reforms

These reforms are part of SEBI’s broader effort to streamline the process of asset transfer and reduce the number of unclaimed assets in the securities market. By providing investors with the ability to nominate up to 10 individuals and specifying how assets will be divided, the new rules will provide more security and clarity for investors and their families. These changes are the result of extensive consultations, including a public consultation paper issued in February 2024.

Conclusion: A Step Toward Simplification and Transparency

The new SEBI guidelines, set to take effect in March 2025, represent a significant improvement in the process of nominating beneficiaries for mutual fund and demat accounts. With up to 10 nominees allowed and the ability to allocate asset percentages, investors can ensure that their assets are distributed as per their wishes. The mandatory nomination for single-holder accounts, along with the simplified submission process, will also offer greater ease and security. Ultimately, these reforms will reduce unclaimed assets, protect heirs, and make the asset transfer process smoother for all parties involved.