New SEBI Revamped Mutual Fund and Demat Account Nomination Rules

Posted On - 26 March, 2025 • By - Mona Rawat

Introduction

The Securities and Exchange Board of India (SEBI) has introduced revamped rules for the nomination process in mutual funds and demat accounts. These revised procedures are meant to streamline the filing of legal succession disputes and make the process more convenient for investors. Affected by the law, either opting for nomination or opting out of it is made compulsory and with this, unclaimed financial assets can be minimized while efficient transfer of assets to eligible beneficiaries can seamlessly occur.

Understanding SEBI’s New Nomination Rules

Investors can assign a nominee to technologically sophisticated instruments like mutual funds and demat accounts. That means in case of an investor’s death, the investment is transferred to the nominee as per their choice seamlessly. The nominee acts as a guardian of the estate and distributes assets among the intended beneficiaries in accordance with the law of succession. But, legal ambiguity in earlier laws gave rise to disputes, unclaimed estates, and long-drawn litigations.

To ensure that investors use their funds and investments, the recent guidelines set by SEBI have introduced a new step to the process— requiring nomination when opening demat accounts or folios. Investors can now either choose to assign a nominee, or they can choose to opt out of one through a declaration form. This reduces grey and hazy areas within our laws regarding finances and minimizes uncertainty about the investments and funds left behind for family members or other surviving relatives. When an individual passes away, their funds and investments are transferred to a nominee set by them. A nominee becomes a guardian for the given assets and ensures the assets reach the rightful descendants based on the governing laws. In the previous regulations where such guidelines did not exist, great disputes, unclaimed assets, and long court cases became the new norm.

Key Changes Introduced by SEBI

  1. Mandatory Nomination or Opt-Out Declaration
    • Investors opening a new mutual fund or demat account must either register a nominee or opt out by submitting a signed declaration.
    • For existing account holders, SEBI had initially set a deadline of December 31, 2023, for updating their nomination details, later extended to February 29, 2025. Accounts without a nomination or opt-out declaration beyond this deadline may face restrictions on transactions.
  2. Simplification of Transmission Process
    • In case of an investor’s demise, the nominee can claim the assets with minimal documentation.
    • The revised rules require only a self-attested copy of the death certificate and Know Your Customer (KYC) documents, reducing the bureaucratic hurdles previously faced by nominees.
    • This reform ensures quicker transmission of assets and minimizes cases of unclaimed financial investments.
  3. Clarification on Nominee’s Role in Succession Planning
    • The nominee acts as a custodian, not the legal heir, meaning they must distribute the assets as per succession laws if there is a valid will or legal heirs are established.
    • This aims to reduce disputes wherein nominees wrongly assume full ownership of the assets.
  4. Digital and Paper-Based Submission of Nomination Forms
    • Investors can now update or change their nomination details online through digital KYC platforms.
    • Physical submission remains an option for those preferring traditional paperwork.
  5. Provision for Incapacitated Investors
    • SEBI’s new guidelines also allow a nominee to act on behalf of an investor in case of incapacity, ensuring their financial matters continue to be managed without unnecessary legal obstacles.

Why These Changes Were Necessary?

Many reports indicate that a large number of financial assets remain unclaimed due to the absence of proper nomination details. Many people who do not name beneficiaries will cause problems for their heirs when they die. The new SEBI rules are, therefore, a preventive step to avert these problems in the future, so that investments do not land up stuck in probate tussles. In addition, the uncertainty surrounding nominees under the previous system caused inheritance disputes when a nominee’s claim was contested by legal heirs. With this new framework, the nominee’s position as a trustee instead of the owner is clearly defined — stronger and better, preventing legitimacy issues, and ensuring rightful ownership of the asset.

Impact on Investors and Nominees

For Investors:

  • Provides a structured process to secure the future of their investments.
  • Encourages active participation in succession planning.
  • Reduces the risk of financial assets becoming unclaimed.

For Nominees:

  • Faster and more efficient transmission of assets.
  • Reduced documentation requirements, making the claim process easier.
  • Clarification of their custodian role, preventing wrongful claims.

For Financial Institutions:

  • Helps financial institutions manage investor records efficiently.
  • Reduces legal disputes and potential litigations over asset ownership.
  • Ensures higher compliance with regulatory norms.

In India, matters of succession are governed by the Indian Succession Act, 1925, and SEBI’s new rules are in consonance with existing law on succession, by clearly demarcating the rights of a nominee vis-a-vis a legal heir. As courts have repeatedly held, nominees are merely trustees, and legal heirs under a valid will or intestate succession laws have the superior claim to assets. Besides that, these rules are in addition to and not in derogation of the provisions contained under the Companies Act, 2013 and the Depositories Act, 1996, in respect of nomination in securities.

Recommendations for Investors

  1. Update Nomination Details: Ensure that all mutual fund and demat account nominations are correctly recorded before the deadline to avoid any restrictions on transactions.                                                 
  2. Review Nominee Information Regularly: Any life changes such as marriage, divorce, or death of a nominee should prompt an update to the nomination details.
  3. Consider Legal Heirs in Estate Planning: Since nominees are only custodians, investors should prepare a legally valid will to ensure their assets reach their intended beneficiaries.                                                                                                                                                                               
  4. Consult Financial and Legal Advisors: If unsure about the implications of nomination, seeking professional advice can help ensure proper estate planning.
  5. Maintain Documentation: Keep a record of nomination details, account statements, and related documents for easy reference by family members.

Conclusion

By making nomination or opting out mandatory, these rules encourage responsible financial planning and address long-standing concerns regarding unclaimed assets and succession disputes. As these reforms kick in, investors will have to actively revise their nomination details and see to it that their financial bequeaths are secured, arranged, and legally valid. These reforms not only safeguard investor interests but also shore up India’s financial system by reducing legal and procedural hurdles in asset passing on.

King Stubb & Kasiva,
Advocates & Attorneys

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