Description

SEBI circular revising and revamping nomination norms for demat accounts and mutual fund folios to prevent 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 subsequent Board approval for amending SEBI (Depositories and Participants) Regulations, 2018 and SEBI (Mutual Funds) Regulations, 1996. The circular establishes uniform norms for nomination across demat accounts and mutual fund folios to prevent generation of unclaimed assets.

Key Points

  • Circular applies to Asset Management Companies (AMCs), their Registrars and Transfer Agents (RTAs), Association of Mutual Funds in India (AMFI), Recognized Depositories, and Registered Depository Participants
  • Establishes rule of survivorship for joint accounts - surviving holders receive assets as owners, not trustees
  • In joint accounts, assets transmit to surviving holder(s) via name deletion upon demise of one or more holders
  • Surviving joint holders can continue, change, or cancel previous nominations
  • Mode of operation (first holder/anyone or survivor/either or survivor/joint) remains unaffected by survivorship rules
  • Nominees receive assets as trustees on behalf of legal heirs, not as owners
  • Legal heirs of a predeceased nominee cannot inherit investor’s assets

Regulatory Changes

Simultaneous Death of Joint Holders:

  • If all joint holders pass away simultaneously with nomination in place: assets transmit to registered nominee(s)
  • If no nomination exists: assets transmit to legal heir(s) or legal representative(s) of the youngest joint holder as per intestate succession rules or Will

Hindu Undivided Family (HUF) Accounts:

  • Upon death of Karta: new Karta constituted under applicable law can operate the account/folio
  • If no new Karta: transmission follows dissolution deed and criteria defined by SRO/industry body in consultation with SEBI

Pro Rata Distribution:

  • If one nominee predeceases the investor and no nomination change is made: assets distributed to surviving nominees on pro rata basis upon investor’s demise

Trustee Status of Nominees:

  • Nominees receive assets of deceased sole account holder as trustee on behalf of legal heirs (not as absolute owners)
  • This ensures due discharge of the regulated entity’s obligations

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

Mandatory Actions:

  • Implement uniform nomination procedures across all demat accounts and MF folios
  • Ensure transmission of assets follows prescribed survivorship rules
  • Process name deletion for surviving joint holders upon demise of co-holder(s)
  • Maintain records of nomination status and changes
  • Follow prescribed procedures for transmission in absence of nomination
  • Use Nomination Form as per Annexure A (referenced in circular)
  • Comply with amended SEBI (Depositories and Participants) Regulations, 2018
  • Comply with amended SEBI (Mutual Funds) Regulations, 1996

Important Dates

  • Circular Issue Date: January 10, 2025
  • Consultation Paper Released: February 2024
  • SEBI Board Approval: Obtained prior to circular issuance (specific date not mentioned)
  • Implementation Timeline: Not specified in the excerpt; likely detailed in subsequent sections of full circular

Impact Assessment

Market-Wide Impact: This circular represents a fundamental restructuring of nomination procedures across the Indian securities market. By establishing uniform norms, it will:

  • Reduce Unclaimed Assets: Primary objective is preventing generation of unclaimed assets through clearer transmission procedures
  • Investor Protection: Ensures smoother transfer of assets to rightful beneficiaries upon investor demise
  • Operational Standardization: Creates consistency across mutual funds and depository systems, reducing confusion and disputes

Impact on Regulated Entities:

  • AMCs, RTAs, and depositories must update systems and procedures to comply with revised norms
  • Training requirements for staff handling transmission and nomination requests
  • Potential system upgrades to implement pro rata distribution and other new features

Impact on Investors:

  • Greater clarity on how assets will be transmitted upon death
  • Understanding that nominees act as trustees (not absolute owners) is crucial
  • Need to review and update existing nominations to align with revised framework
  • Joint account holders gain clearer understanding of survivorship rights

Legal and Administrative Impact:

  • Clearer framework reduces potential for litigation over asset transmission
  • Simplified procedures for HUF accounts and joint holdings
  • Better documentation requirements will create audit trails

Impact Justification

Major regulatory overhaul affecting all mutual fund investors, AMCs, RTAs, depositories and depository participants. Introduces significant changes to nomination procedures and transmission of assets to prevent unclaimed assets.