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SEBI Proposes Easier Nomination Rules for Demat, Mutual Fund Accounts

SEBI has issued a consultation paper proposing key changes to nomination norms for demat accounts and mutual fund folios. The proposals aim to simplify the investor onboarding process and align it with banking norms by reducing the mandatory information required for a nominee. Key changes include capping the maximum number of nominees at four and allowing the use of the existing Power of Attorney mechanism in cases of investor incapacitation. The regulator is seeking public comments on these proposals to address implementation challenges and fraud risks flagged by the industry.

Key Points: SEBI Eases Nomination Norms for Demat & Mutual Fund Accounts

  • Simplify nomination process
  • Cap nominees at four
  • Reduce mandatory details
  • Use Power of Attorney for incapacitation
2 min read

SEBI mulls easing nomination norms for demat, mutual fund accounts

SEBI proposes simplifying nomination rules for demat and MF accounts, reducing mandatory details and capping nominees at four. Public comments invited.

"proposals aim to modify its January 10, 2025, circular... to improve the ease of investor onboarding - SEBI Consultation Paper"

New Delhi, March 17

India's market watchdog, the Securities and Exchange Board of India, on Tuesday issued a consultation paper proposing changes to nomination norms for demat accounts and mutual fund folios, seeking public comments.

The regulator said the proposals aim to modify its January 10, 2025, circular on nomination facilities in the securities market to improve the ease of investor onboarding and align processes with banking norms.

Under the existing framework introduced last year, single-holding investors were allowed to authorise one nominee (excluding minors) to operate their accounts in case of physical incapacitation, provided they remain mentally capable of contracting.

However, nominees are not permitted to update key account details such as bank information or contact details.

The current rules also mandate investors to provide at least one personal identifier of the nominee, such as PAN, driving licence number or the last four digits of Aadhaar, along with full contact details, relationship status, and date of birth in case of minors.

Investors can nominate up to 10 persons in a mutual fund folio, while Power of Attorney (PoA) holders are not allowed to nominate.

Moreover, the market regulator has flagged implementation challenges and risks associated with allowing nominees to operate accounts. The SEBI noted that the industry has cited high compliance costs, difficulty in maintaining audit trails, and potential risks of fraud, misuse and legal disputes.

To address this, it has proposed allowing the existing Power of Attorney mechanism to be used in cases where an investor is incapacitated but still capable of entering into a contract.

The regulator has also proposed simplifying the nomination process by reducing mandatory details. It suggested that only the name of the nominee and the nature of the relationship with the investor should be compulsory, while other details can be provided optionally.

In addition, the SEBI has proposed making nomination the default option at the time of opening new accounts.

For existing accounts without a nomination or opt-out, intermediaries will be required to periodically nudge investors through email and SMS to complete the process.

Further, while the 2025 circular increased the maximum number of nominees from three to 10, the SEBI said this could create operational challenges.

It has now proposed capping the number of nominees at four for both demat accounts and mutual fund folios, while retaining the limit of three joint holders.

- IANS

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Reader Comments

S
Sarah B
As someone who manages investments for elderly parents, I appreciate the focus on simplifying processes. The periodic nudges for existing accounts are crucial—many people just forget to update nominations. However, capping nominees at four might be restrictive for larger families with specific asset distribution wishes.
A
Arjun K
Finally! Aligning with banking norms makes perfect sense. Why should demat account rules be different? The proposal to use existing PoA mechanism instead of creating a separate nominee-operated account is smart—reduces complexity and cost. Hope they implement this soon.
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Priya S
Making nomination the default option is a game-changer. So many of my friends have no nomination on their mutual funds because they didn't understand the form. This protects families. But SEBI must ensure strong safeguards against fraud—simplification shouldn't mean weaker security.
V
Vikram M
Respectfully, while simplification is good, reducing mandatory details might backfire. In India, many people share common names. How will intermediaries uniquely identify a nominee with just a name? PAN or Aadhaar last digits provided some verification. This could lead to disputes later.
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Michael C
The cap of four nominees seems reasonable—most investors won't need more than that. The real issue is awareness. SEBI and brokers need to run campaigns explaining why nomination is important, especially in tier 2/3 cities. Financial literacy is key here.

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

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