Description

SEBI mandates all mutual fund investors to either nominate or formally opt-out with authentication requirements. Fresh folio creation transactions without compliance will be rejected from December 15, 2025.

Summary

SEBI has mandated that all mutual fund investors must either designate a nominee or formally opt-out of nomination for their investments. This applies to both existing and new investors. The opt-out process requires OTP-based two-factor authentication along with either a signed declaration or video verification. Members must generate unique reference numbers and maintain documentation. From December 15, 2025, transactions for fresh folio creation under non-demat mode without proper nomination compliance will be rejected.

Key Points

  • All mutual fund investors must either nominate or formally opt-out of nomination
  • Applies to both existing and new investors
  • Opt-out requires OTP-based 2FA authentication with signed declaration or video verification
  • Members must generate and maintain unique reference numbers for opt-out declarations
  • Nomination details can be added or modified at UCC level or Folio level at any time with reauthentication
  • Members must upload and store opt-out documentation for submission to RTA/AMC/Regulator
  • All holders in UCC will receive authentication links for verification
  • Declaration forms and video recordings must be maintained by members

Regulatory Changes

SEBI has introduced mandatory nomination or opt-out requirements for all mutual fund investments. The key changes include:

  • Authentication Framework: Implementation of OTP-based two-factor authentication for all nomination and opt-out actions
  • Documentation Requirements: Investors choosing to opt-out must provide either a signed Nomination Opt-Out Declaration Form or video recording
  • Reference Number System: Unique reference numbers must be generated for each opt-out process and mentioned on declaration forms and at UCC level
  • Storage Requirements: Members must upload and maintain records of opt-out declarations for regulatory submission

Compliance Requirements

For Members/Intermediaries:

  • Implement OTP-based 2FA authentication system for nomination and opt-out processes
  • Generate unique reference numbers for all opt-out declarations
  • Upload nomination opt-out documents via web portal (Admin » Client Details » ELog / Image Upload) or existing API interface
  • Store and maintain all opt-out declaration forms and video recordings
  • Provide records to RTA/AMC/Regulator as and when required or at defined intervals
  • Ensure all holders in UCC receive and complete authentication

For Investors:

  • Complete two-factor authentication (OTP) for opt-out process
  • Submit formal declaration form or record video as per SEBI norms if opting out
  • Reauthentication required for any changes to nomination details
  • All holders must authenticate for new UCC creation or modification

Important Dates

  • December 15, 2025: Transactions for fresh folio creation under non-demat mode without proper nomination compliance will be liable for rejection

Impact Assessment

Operational Impact:

  • High impact on BSE StAR MF platform members, RTAs, and AMCs requiring system upgrades for authentication and documentation workflows
  • Members must implement document upload and storage infrastructure
  • API integration required for automated opt-out declaration processing

Investor Impact:

  • All investors must complete nomination or opt-out process to avoid transaction rejections
  • Additional authentication steps required for fresh folio creation
  • Enhanced investor protection through formal documentation requirements

Market Impact:

  • Potential initial slowdown in fresh folio creation transactions as investors and intermediaries adapt to new processes
  • Improved regulatory compliance and investor protection standards across mutual fund industry
  • Better record-keeping and audit trail for nomination preferences

Impact Justification

Mandatory compliance requirement affecting all mutual fund investors with transaction rejection consequences from December 15, 2025. Requires operational changes by members, RTAs, and AMCs for authentication and documentation processes.