On February 28, 2025, the Securities and Exchange Board of India (SEBI) issued a circular detailing amendments and clarifications to its January 10, 2025, circular on revising and revamping the nomination facilities in the Indian securities market. This update is critical for stakeholders including Asset Management Companies (AMCs), Registrars to an Issue and Share Transfer Agents (RTAs), and Depository Participants (DPs), as it further refines the processes for nominations in mutual fund folios and demat accounts.
The primary goal of the SEBI circular is to simplify and clarify the nomination process for investors, making it more streamlined and accessible. SEBI’s efforts to address queries and concerns from stakeholders in the industry resulted in several key clarifications.
- Transmission of Assets for Joint Holdings (Clause 2.1.1)
The circular clarifies that, in the event of the demise of one or more joint holders, the assets held in a joint account will be transmitted to the surviving joint holder(s) by deleting the deceased holder(s)’ name. However, it also provides flexibility by offering the surviving holder(s) the option to transfer these assets into a new or existing account or folio, enhancing the flexibility of asset management after such events.
- Opting Out of Nomination (Clause 2.8)
Investors who hold a single account or folio now have the ability to opt out of the nomination process. This can be done either through online or physical modes, depending on the investor’s preference. This provision offers an alternative for those who do not wish to designate a nominee for their holdings. The ease of opting out through online channels has been emphasized for both new and existing account holders.
- Empowering a Nominee to Operate the Account (Clause 3.5)
Another notable change is the introduction of a mechanism that allows an investor with a single holding or account to empower a nominee to operate the account in the event of the investor being physically incapacitated but still mentally competent. This empowerment can be given to a nominee (excluding minor nominees), and the investor can make changes to this designation as often as needed, without any restrictions. This ensures that the nominee has the authority to manage the account in times of need.
- KYC Norms for Surviving Joint Holders (Clause 3.8)
In cases where the account becomes a single holding following the demise of a joint holder, SEBI clarified that the regulated entities are not required to request KYC documentation from the surviving holder(s) for transmission purposes, provided that the KYC information was already collected earlier. This minimizes delays in the transmission process. However, the surviving holder(s) have the option to update their KYC details, such as residential address, mobile number, and email address, at the time of transmission or later.
- Handling of Credit Transactions (Clause 3.9)
The circular emphasizes that credit transactions, including those resulting from corporate actions, will continue to be permitted in such accounts or folios that undergo transmission due to the death of a joint holder. This ensures that the transmission process does not disrupt the account’s ability to receive credits from corporate actions.
- Online and Offline Opt-Out Mechanism (Clause 3.10)
The final clarification deals with the opt-out process for both new and existing accounts. For new accounts opened online, the opt-out process must also be completed online, whereas new offline accounts will require the opt-out to be completed offline. Existing account holders have the flexibility to opt out either online or offline, based on their convenience. For demat accounts, Depository Participants (DPs) will handle the online opt-out process, not the depositories themselves.
