Description

SEBI circular revising and revamping nomination norms for demat accounts and mutual fund folios to prevent generation of unclaimed assets in the Indian securities market.

Summary

SEBI has issued a comprehensive circular (SEBI/HO/OIAE/OIAE_IAD-3/P/ON/2025/01650) dated January 10, 2025, revising and revamping nomination facilities in the Indian securities market. This follows a consultation paper from February 2024 and Board approval for amending SEBI (Depositories and Participants) Regulations, 2018 and SEBI (Mutual Funds) Regulations, 1996. The circular aims to prevent generation of unclaimed assets and ensure uniform approach across securities market for nomination in demat accounts and mutual fund folios.

Key Points

  • Circular addresses Asset Management Companies (AMCs), Registrars and Transfer Agents (RTAs), AMFI, Recognized Depositories, and Registered Depository Participants
  • Reiterates existing norms to ensure uniform approach across securities market (Section A)
  • Covers rule of survivorship, simultaneous death of joint holders, HUF accounts, nominee rights, and pro rata distribution
  • Nominees receive assets as trustees on behalf of legal heirs, not as owners
  • Surviving joint holders receive assets as owners and can continue, change or cancel nominations
  • Mode of operation of joint accounts remains unaffected by survivorship rules

Regulatory Changes

Rule of Survivorship:

  • In joint accounts, upon demise of one or more joint holders, assets transmitted to surviving holder(s) via name deletion
  • Surviving members receive assets as owners, not trustees
  • Surviving joint holders entitled to continue, change or cancel previous nominations
  • Account operation mode (first holder/anyone or survivor/either or survivor/joint) unaffected by survivorship

Simultaneous Death of All Joint Holders:

  • Assets transmitted to registered nominee(s) for due discharge
  • In absence of nomination, assets go to legal heir(s) of youngest joint holder as per intestate succession rules or Will

Hindu Undivided Family (HUF) Accounts:

  • Upon death of recorded Karta, new Karta under applicable law entitled to operate account/folio
  • In absence of new Karta, transmission effected as per dissolution deed and criteria defined by SRO/industry body in consultation with SEBI

Nominee Rights and Limitations:

  • Nominees receive assets as trustees on behalf of legal heirs of deceased holder(s)
  • Legal heirs of nominee not eligible to inherit investor’s assets if nominee predeceases investor
  • If one nominee dies before investor and no change made, surviving nominees receive assets on pro rata basis

Compliance Requirements

Applicable to:

  • Asset Management Companies (AMCs) of Mutual Funds
  • Registrars to an issue and Share Transfer Agents (RTAs)
  • Association of Mutual Funds in India (AMFI)
  • Recognized Depositories
  • Registered Depository Participants

Key Requirements:

  • Implement uniform nomination procedures across demat accounts and MF folios
  • Follow prescribed transmission procedures for various scenarios (survivorship, simultaneous death, HUF)
  • Maintain nomination forms as per Annexure A format
  • Effect name deletion for surviving joint holders upon demise of co-holder(s)
  • Transmit assets to nominees/legal heirs following prescribed procedures
  • Ensure pro rata distribution among surviving nominees when applicable

Important Dates

  • Consultation Paper Issued: February 2024
  • Circular Date: January 10, 2025 (SEBI/HO/OIAE/OIAE_IAD-3/P/ON/2025/01650)
  • Implementation Deadline: Not specified in this section; likely covered in Section B of full circular

Impact Assessment

Market Impact:

  • Affects all mutual fund investors, demat account holders across India
  • Standardizes nomination processes across depositories and mutual fund industry
  • Reduces ambiguity in transmission of assets upon investor death

Operational Impact:

  • AMCs, RTAs, depositories and DPs need to update systems and procedures
  • Enhanced clarity on handling joint accounts, HUF accounts and nominee rights
  • Streamlined process for preventing unclaimed assets
  • May require investor education and communication campaigns

Investor Protection:

  • Strengthens investor protection by clarifying succession rights
  • Prevents disputes regarding asset transmission
  • Ensures assets reach rightful legal heirs through nominee mechanism
  • Provides clear framework for complex scenarios like simultaneous death and HUF dissolution

Impact Justification

Major regulatory overhaul affecting all mutual fund investors, AMCs, RTAs, depositories and depository participants. Changes fundamental rules around nomination, survivorship and transmission of assets.