A consultation document aimed at revamping and revising nomination facilities in the securities market has been released by the Securities Exchange Board of India (Sebi), the capital markets regulator.

According to the Sebi report, certain steps have recently been taken to protect investors and lower the amount of unclaimed assets. Strict KYC, nomination requirements, streamlined transmission standards, and a centralized system for informing KRAs of an investor's passing are some of these steps. Because of this, the regulator's consultation document states that the planned redesign of the nominations framework intends to facilitate the legal heirs' succession process and help reduce the amount of unclaimed assets.

Important information regarding the consultation paper:

1. Nomination facility revisions

In order to better serve investors in the Indian securities market, this consultation paper suggests making changes to the nomination facilities for securities (such as bonds, shares, and units of REITs, InvITs, AIFs, and other securities) held in dematerialized form in a demat account and for units of mutual fund schemes held in non-materialized form.

This would guarantee consistency throughout the facilities and processes while granting specific options and flexibility in the nomination facilities. Importantly, these updated nomination tools will function independently of the existing legal procedures controlling succession and transmission.

2. Reportage

The proposal will encompass demat accounts, mutual fund scheme units, and AIF units that are expressed in a statement of account.

3. Norms and boundaries

The following general guidelines will still be applicable to demat accounts and non-materialized mutual fund units:

For example, if two or more people have opened a demat account or jointly own units of mutual fund schemes, then upon the death of any one of them, the remaining joint holders/owners will inherit the right, title, and interest to the demat account or the units of mutual fund schemes.

Furthermore, in the event that all joint holders or owners of a joint account pass away at the same time, the right, title, and interest to the mutual fund units or the demat account will be transferred to the nominee or nominees in order to effect the proper discharge. The regulatory body enumerates eight general rules and inquires as to whether any of them need to be modified.

4. Actions to be performed 

In order to preserve nomination records, make amendments to nominations in the event that a nominee is a minor, issue a standard nomination form for all MF units, and other related matters, the regulator lays out 15 steps that must be followed by the relevant entities.  

The regulator has requested public feedback on the plan due to its consequences for investors, their nominees, depositories, asset management firms, their registrars, and market players. According to the circular released on February 2, feedback must be submitted via the online form to Sebi by March 5, 2024.