[Analysis] SEBI’s New Rules on Nominations | No More Freezing of Demat and Mutual Fund Accounts

SEBI nomination decisions refer to the Securities and Exchange Board of India's (SEBI) recent changes regarding the submission of nomination choices for Demat accounts and mutual fund folios. These decisions include:
– Demat and mutual fund accounts will not be frozen due to non-submission of nomination choices
– Listed companies and RTAs cannot withhold payments due to a lack of nominations
– New investors must provide a choice of nomination, except for jointly held accounts
– Existing investors are encouraged to update their nomination details
– DPs, RTAs, and AMC must send reminders to investors to update nomination details
– Pop-up reminders will be introduced to prompt existing investors to submit their nomination choices

Table of Contents

1. Introduction
2. SEBI’s Key Decisions for Existing Investors/Unitholders
3. Mandatory Nomination Choices for New Investors
4. Encouraging Nomination Choices for Smooth Transmission of Securities
5. Email Reminders from DPs and AMCs for Nomination Updates
6. Facility of Pop-Up Reminders to Existing Investors for Nomination Submission
7. Conclusion

1. Introduction

On December 27, 2023, SEBI extended the deadline for investors to choose nominations for their demat accounts and mutual fund folios to June 30, 2024. Failing to do so would have resulted in freezing these accounts. However, in a circular dated June 10, 2024, SEBI made significant decisions for both existing and new investors. These decisions include:

• Demat and mutual fund accounts will not be frozen anymore due to non-submission of nominations.
• Listed companies/RTAs cannot hold back payments due to a lack of nominations.

These provisions are effective immediately.

2. SEBI’s Key Decisions for Existing Investors/Unitholders

Based on representations received from market participants and for the ease of compliance and investor convenience, SEBI has made the following key decisions for existing investors/unitholders:

2.1 Demat and Mutual Fund Accounts Will Not Be Frozen Due to Non-Submission of Nomination Choices

SEBI clarified that demat and mutual fund accounts will not be frozen due to the non-submission of the ‘choice of nomination’. This decision ensures that all investors retain uninterrupted access to their accounts, irrespective of their nomination status.

2.2 Security Holders Can Lodge Grievances and Receive Payments Without Submitting Nomination Choices

According to the Master Circular for ‘Registrars to an Issue and Share Transfer Agents’ (RTAs) dated May 7, 2024, security holders with physical securities were previously required to submit their PAN, choice of nomination, and bank account details to lodge grievances or access services from RTAs. SEBI has now clarified that these security holders can do so even without submitting a ‘choice of nomination’. They can also receive any payment, such as dividends, interest, or redemption money, without submitting nomination choices.

2.3 Listed Companies/RTA Can’t Withhold Pending Payments for Lack of Nomination

Listed companies/RTAs cannot withhold pending payments of security holders for want of nominations. Any payments, including dividends, interest, or redemption payments, currently withheld due to a lack of nomination must be processed immediately. This ensures timely disbursement and prevents unnecessary delays.

3. Mandatory Nomination Choices for New Investors

SEBI has required all new investors/unitholders to provide a ‘Choice of Nomination’ for their demat accounts and MF folios, except for jointly held demat accounts and MF folios. This aims to ensure that beneficiaries are clearly designated.

4. Encouraging Nomination Choices for Smooth Transmission of Securities

SEBI encourages all existing investors/unitholders to provide their nomination details to ensure the smooth transmission of securities and to prevent the accumulation of unclaimed assets in the securities market. This step helps in the seamless transition of assets and reduces the risk of unclaimed securities.

5. Email Reminders from DPs and AMCs for Nomination Updates

Depository Participants (DPs) for demat accounts and RTAs and Asset Management Companies (AMCs) for mutual fund folios must encourage account holders to update their nomination details by sending communications via emails and SMS to those holders who haven’t provided this information. This proactive approach ensures better management of investor records.

6. Facility of Pop-Up Reminders to Existing Investors for Nomination Submission

A new pop-up facility must be provided on web/mobile applications or platforms while investors log into demat and MF accounts. This facility encourages existing investors to provide a ‘choice of nomination’. Depositories and Depository Participants provide this facility for demat accounts, and AMCs provide it for MF accounts. Further, this pop-up may be shown only to those clients whose MF folios/demat accounts do not have the ‘choice of nomination’. These provisions shall be effective from October 01, 2024. This ensures that investors are continuously reminded to update their nomination details.

7. Conclusion

SEBI’s new measures ensure greater flexibility and convenience for investors by eliminating the risk of account freezes due to non-submission of nominations. These changes promote continuous access to investments, encourage the proper designation of beneficiaries, enhance investor confidence, and streamline the asset transmission process in the securities market.