SEBI Eases Demat, MF Nomination Rules; Mandatory Opt-Out for New Single Accounts

The Securities and Exchange Board of India (SEBI) has announced significant revisions to the nomination rules for demat accounts and mutual fund folios, aiming to simplify the investment process and effectively address the persistent issue of unclaimed financial assets across the Indian securities market. These updated norms, which come into effect on September 1, 2026, mark a crucial step towards enhancing investor protection and streamlining wealth transfer. Under the revised framework, investors opening new single-holder demat accounts or mutual fund folios after the implementation date will be required to either provide nominee details or explicitly opt out of nomination by submitting a declaration form. This 'opt-out' provision offers flexibility while making nomination the default expectation for individual investors. It's important to note that for jointly held accounts and folios, the nomination facility will remain optional, acknowledging that surviving holders typically inherit the assets in such cases. One of the primary drivers behind these changes was feedback from market participants regarding operational challenges encountered with previous nomination frameworks. SEBI had, for instance, introduced a framework in January 2025 that was perceived as cumbersome. This earlier framework had expanded the maximum number of nominees to ten, allowed nominees to operate accounts of incapacitated investors, mandated extensive nominee details, and required video-based opt-out processes. The latest circular, issued on May 29, 2026, effectively rolls back some of these more complex requirements, reverting to a more investor-friendly approach while still pursuing the goal of reducing unclaimed assets. Key simplifications under the new rules include a reduction in the number of mandatory details required for nominees. Investors will now only need to provide the nominee's name and their relationship with the investor. If the nominee is a minor, their date of birth will also be mandatory. Other details, such as the nominee's mobile number, email ID, KYC information, and percentage share allocation, have been made optional. This reduction in information burden aims to minimize friction during the account opening and nomination process, which previously led to many investors skipping nomination altogether. Furthermore, SEBI has clarified that investors can now nominate up to three individuals for a demat account or mutual fund folio. In situations where multiple nominees are appointed and no specific percentage allocation is provided, the assets will be divided equally among all nominees by default. This simplifies the distribution process and reduces potential disputes. Investors also have the flexibility to add, modify, or cancel their nomination details any number of times, and regulated entities like depository participants and mutual fund registrars are required to provide an acknowledgment for every change. The nomination process itself has been made more accessible. Investors can submit nomination requests through both online and offline methods. For online submissions, validation can be done using a Digital Signature Certificate (DSC), Aadhaar-based e-sign, other legally recognized e-sign methods, or two-factor authentication (2FA) with OTP verification on the registered mobile number and email address. For physical or offline nominations, a regular signature will suffice, and importantly, witness signatures will no longer be required unless the investor uses a thumb impression. This move significantly streamlines the physical submission process. To ensure that existing investors who have not yet nominated or have opted out are also brought into the fold, SEBI has mandated new nudges. Depository participants and mutual fund RTAs will now be required to send SMS and email reminders twice a year to such account holders. Additionally, pop-up messages highlighting the benefits of nomination will be displayed during login. These reminders will cease once the investor completes the nomination formalities. Overall, these revised norms reflect SEBI's commitment to striking a balance between regulatory oversight and investor convenience. By simplifying the nomination process, reducing documentation requirements, and offering flexible submission options, SEBI aims to encourage more investors to secure their financial future and ensure a smoother transmission of their investments to their chosen beneficiaries, thereby mitigating the problem of unclaimed assets. The move is expected to have a positive impact on retail investor participation and confidence in the Indian securities market.

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