SEBI proposes optional nomination for joint mutual fund folios and demat accounts

SEBI's nomination shift: The Securities and Exchange Board of India (SEBI) has recently proposed a change in the nomination process for jointly-held mutual fund folios and demat accounts. In a consultation paper released on February 2, SEBI recommends a shift from mandatory to optional nomination for investors with jointly-held investments. 

Under this proposed change, joint account holders would have the choice to either nominate or opt out, while for single holders, nomination would remain compulsory. The existing rule of survivorship, where the rights and interests pass to surviving joint holders upon the death of one account holder, would continue to be in effect. 

Optional nominations ahead

Despite multiple deadline extensions for investors to complete their nominations, SEBI is now considering making the nomination process optional. If implemented, investors with jointly-held mutual fund folios and demat accounts will have the choice to nominate or opt-out, whereas for single holders, nomination will remain mandatory.

In jointly-held investments, the survivorship principle will persist, ensuring a smooth transfer of rights, title, and interest to the surviving joint holders or owners in case of the death of one account holder. Comments on this proposal can be submitted to SEBI by March 8, 2024.

Unfinished nominations stats

Recently, SEBI extended the nomination completion deadline from December 31, 2023, to June 30, 2024, to prevent accounts from freezing due to pending nominations. The consultation paper reveals that 27.2 per cent of jointly-held mutual fund folios and 6.2 per cent of jointly-held demat accounts still lack complete nominations.

While the option to make nomination non-mandatory may provide relief to those struggling to complete the process, financial experts underscore the continued importance of having a nominee. They emphasise that having a nominee becomes crucial, especially if all joint holders pass away, ensuring a smooth transition of financial assets to the surviving family or legal heirs of the deceased.