Sebi rules on nomination in mutual funds, demat accounts. 10 things to know

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In a move aimed at simplifying compliance for stock and mutual fund investors, Sebi announced on Monday that demat accounts and mutual fund folios will no longer be frozen due to non-submission of nomination.According to a circular issued by the markets regulator, Sebi has taken this decision based on representations from participants to enhance ease of compliance and investor convenience.
The circular highlighted that the non-submission of ‘choice of nomination’ will not lead to freezing of demat accounts and mutual fund folios.

Key things to know mentioned in the Sebi circular:

  1. In a significant relief for investors, Sebi has decided that any payments, such as dividends, interest, or redemption payments that are currently withheld by listed companies or RTAs due to the lack of a ‘choice of nomination,’ will now be processed.
  2. Security holders with physical forms will be eligible to receive payments like dividends, interest, or redemption payments, and they can also lodge grievances or make service requests with the RTA, without needing to submit a ‘choice of nomination.’
  3. However, all new investors or unit holders will still be required to provide the ‘Choice of Nomination’ for demat accounts or mutual fund folios, except for jointly held demat accounts and mutual fund folios.
  4. Sebi has also encouraged all existing investors and unit holders to provide a ‘choice of nomination’ to ensure smooth transmission of securities and to prevent the accumulation of unclaimed assets in the securities market.
  5. For demat accounts, depository participants, and for mutual funds, the fund houses and RTAs will encourage account holders to update their ‘choice of nomination’ by sending fortnightly communications via emails and SMS to those who have not yet provided this information.
  6. To further encourage existing investors, the regulator has suggested that a pop-up should be added to web or mobile applications and platforms used by depositories, depository participants, and AMCs. This pop-up will be displayed when investors log into their accounts and will prompt only those whose MF folios or demat accounts lack a ‘choice of nomination.’
  7. Sebi has also directed stock exchanges, depositories, fund houses, RTAs, and listed companies to take the necessary steps to implement these provisions. This includes making relevant amendments to their bye-laws, business rules, regulations, and operational instructions.
  8. The entities involved are required to disseminate the information from this circular on their websites, inform their respective constituents, communicate the status of the implementation to Sebi, and monitor compliance with the provisions of this circular.
  9. All other provisions related to the requirement of nomination, as mentioned in Sebi’s previous circulars, will remain unchanged.
  10. Investors will need to fill in three mandatory fields when updating nomination details. These include the name of the nominee, the share of each nominee, and the relationship with the applicant.

Investors are now afforded more flexibility and time to comply with these requirements, making the investment process smoother and more user-friendly.