SEBI Proposes Overhaul of Nomination Norms for Demat and Mutual Fund Accounts
The Securities and Exchange Board of India (SEBI) has taken a significant step towards enhancing investor convenience and operational efficiency by issuing a consultation paper on March 17, 2026. This proposal aims to modify nomination norms for demat accounts and mutual fund folios, with the primary goal of simplifying investor onboarding processes and aligning them more closely with established banking standards. The move comes in response to operational challenges identified following a previous circular dated January 10, 2025, and seeks to address issues that have hindered seamless investor participation.
Key Changes in the Proposed Norms
SEBI has introduced several pivotal changes in its consultation paper. Firstly, nomination will become the default choice for all single accounts or folios opened after a specified date. Investors who do not wish to nominate will be specifically required to choose 'opt-out of nomination', a measure designed to prevent the accumulation of unclaimed assets. If an investor opts out, a pop-up message will appear, explaining the benefits of nomination and requiring the investor to provide consent in this pop-up message to opt-out from nomination. This ensures that investors make an informed decision, reducing the risk of unintended consequences.
Simplification of Nominee Information Requirements
In a bid to reduce the burden on investors, SEBI has proposed simplifying the mandatory information required for nominees. Under the new norms, only the nominee's name and the nature of their relationship with the investor will be compulsory. Other details, such as address, mobile number, email, and the percentage share of each nominee, will become optional. The regulator noted that the process of furnishing so many details of the nominee is onerous for investors, leading to many dropping off during onboarding. If a percentage share is not specified, assets will be apportioned among the nominees equally, ensuring fair distribution without complicating the process.
Adjustments to Nominee Limits and Operational Considerations
SEBI has also addressed the number of nominees allowed per account. The proposal suggests increasing the limit to four nominees, aligning with current banking norms, instead of the ten previously suggested in the January 2025 circular. Data reviewed by SEBI indicated that a very low percentage of investors opt for more than one nominee, and increasing the nominees to 10 may create a strain on the system leading to operational issues. While the nominee limit may increase, the maximum number of joint holders in an account will remain three, maintaining consistency with existing regulations.
Clarification on Nominee Roles and Power of Attorney
The consultation paper further clarifies the role of nominees during an investor's lifetime. The industry had raised concerns that allowing nominees to operate accounts in case of investor incapacitation was challenging due to high implementation costs and the difficulty in maintaining audit trails. In response, SEBI observed that a nominee becomes trustee of the assets only upon the demise of the investor. Consequently, the regulator has proposed that the existing Power of Attorney mechanism should be utilized for situations where an investor is incapacitated but still retains the capacity to contract. This approach aims to balance operational feasibility with investor protection.
Invitation for Public Feedback
SEBI has invited public comments on these proposed modifications until April 7, 2026. This consultation period allows stakeholders, including investors, financial institutions, and industry experts, to provide feedback that could shape the final norms. The regulator's proactive stance reflects its commitment to fostering a more investor-friendly environment while ensuring the stability and efficiency of the securities market.
Overall, SEBI's proposed changes to nomination norms represent a comprehensive effort to streamline processes, reduce administrative burdens, and align with global best practices. By making nomination the default, simplifying information requirements, and adjusting nominee limits, SEBI aims to enhance investor confidence and prevent the creation of unclaimed assets, ultimately contributing to a more robust financial ecosystem in India.
