Mutual Fund Nomination Facility Revamped: All You Need to Know

For all new investors/unitholders, the Securities and Exchange Board of India (SEBI) circular dated June 10, 2024, has made it clear that they shall be required to mandatorily provide the 'Choice of Nomination' for demat accounts and/or mutual fund folios (except for jointly held demat accounts and mutual fund folios).

'Choice of nomination' means you, the unitholder/investor either explicitly opt-in or opt-out of nomination.

[Read: How To Add Nominee in Mutual Funds]

Last week -- exactly six months after the earlier circular -- SEBI issued another circular dated January 10, 2025, revising and revamping nomination facilities in the Indian security market.

Now, investors can nominate up to 10 persons in the account/folio, specifying the percentage share for each nominee. And in the absence of such specification, the regulated entity shall apportion the assets equally among all the nominees.

As an investor, you can submit any one of the following personal identifiers of the nominees:

- Permanent Account Number (PAN); or

- Driving Licence number; or

- The last 4 digits of Aadhaar

Note, that SEBI has clarified that only the document number is required to be provided, not the document.

Moreover, in the nomination form (as given in Annexure A of the circular) full contact details of the nominee(s), viz. the residential address, e-mail address, telephone/mobile number, date of birth of the nominee, as well as the relationship of the nominee(s) with the investor must be provided.

SEBI's latest circular has not placed any restrictions on the number of instances you, the investor can make changes to nomination or cancel his/her nomination.

SEBI in its latest circular, however, has stated that the Power of Attorney (POA) Holder(s) of the investor cannot nominate.

Transmission of Assets to Registered Nominee(s)

In the case of transmission of a joint account/folio, the circular makes it clear that the nominees shall have the option to either continue as joint holders with the other nominees or open a separate single account/folio for their respective portion.

The documents required for transmission should be a self-attested copy of the Death Certificate of the deceased investors, due completion, updating or reaffirming of the KYC of nominee/s, due discharge from the creditors if there are subsisting credit facilities secured by a duly created pledge.

In case of the demise of the investor and any one of the nominees, the regulated entities shall distribute the assets pro rata to the remaining nominees.

The nominees(s) shall receive the assets of the deceased sole account/sole holder(s) as a trustee on behalf of the legal heir(s) of the deceased holder(s) thereby effecting due discharge of the concerned regulated entity. The Legal heir(s) of the nominee shall not be eligible to inherit the assets of the investor if the nominee predeceases the investor.

Note, that the regulated entity is fully discharged from its liabilities upon transmission of assets to the nominee(s), as a suitable declaration in this regard will have to be signed by the nominee(s).

Transfer of Assets to Legal Heirs or Representative of the Nominees

In such a case, the regulated entities are required to facilitate/extend cooperation to transfer assets from the nominee(s) to the legal heir(s) of an investor, as and when approached by either party.

Nominee Can Now Also Act on Behalf of Incapacitated Person

SEBI has also given rights to the nominee to act on behalf of an investor who is physically incapacitated but still has the capacity to contract.

In this regard, the investor can also specify either the percentage or absolute value of assets in the account/ folio that can be encashed by such a nominee. Any encashment by such nominee shall be credited only to the bank account linked to the account/folio of the investor.

The broader guidelines to be followed by Asset Management Companies, Registrar & Transfer Agent and Depository Participants for the operation of accounts in case of an incapacitated investor are, as follows:

• Upon receipt of intimation on behalf of such investor, a responsible officer of the regulated entity shall visit the incapacitated investor in person. The aforesaid request shall be accompanied by a medical certificate indicating the reason for the inability to affix a signature by the investor and its tenure.

• This officer shall first-hand ascertain that the investor has the capacity to contract (i.e. to exclude investors in ventilator, coma or unconscious)

• Depending on the nature and degree of incapacitation, this officer shall obtain a thumb or toe impression or 'a mark', as the case may be, on the written request for transacting in the account/folio of the incapacitated investor, in the presence of an independent witness.

• This officer shall record his/her name, signature and suitable remarks to the effect that "Thumb impression/toe impression/mark affixed in my presence" on the written request of the client.

• The AMC, RTA or DP shall not allow any service request, including change in bank account, email address, mobile number etc. by such nominee.

Notwithstanding the above, the POA holder can continue to transact in the account/folios of an investor, subject to the applicable norms.

To have uniformity in dealing with incapacitated investors and those with special needs or sick or old investors in the securities market, SEBI has also directed Depositories and AMFI to put in place a common Standard Operating Procedure (SOP) and make it available on their websites.

What Happens When Nominee Passes Away Before the Investor

In case one of the nominees passes away before the demise of the investor and if no change is made in the nomination, then the assets shall be distributed to the surviving nominee(s) on a pro-rata basis upon the demise of the investor, as per the Nomination Form (in Annexure A of the SEBI circular).

To Conclude...

Keep in mind, that nomination is mandatory for single holding only. The requirement of nomination is optional for jointly held accounts/folios. The surviving holder(s) will be considered the owner of the assets. That said, it is better to appoint a nominee because, in the absence of a nominee, the assets could go unclaimed.

As an investor, you can make a nomination online with a digital signature, Aadhaar-based OTP or two-factor authentication. You could also appoint a nominee physically, wherein you affix the thumb impression on the nomination form, then the same is witnessed by two persons and details of such witnesses are duly captured in the nomination form. However, there shall be no such requirement of witnesses in case of nomination forms carrying wet/ digital/ e-sign signatures of you, the investor.

Note, that SEBI has also made it mandatory for regulated entities to provide acknowledgement to the investor for every instance, irrespective of the mode of nomination. They are required to maintain physical or electronic records, as the case may be, of the nomination, its acknowledgement etc. for eight years after transmission of the folio/ account. Make sure you obtain an acknowledgement each time you appoint a nominee or change the nomination.

Be thoughtful in your approach. Make sure you have nominations for all your investments.

Happy Investing!

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Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.

This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.