Last week, a day following the Interim Budget 2024, the capital market regulator, the Securities and Exchange Board of India (SEBI) released a consultation paper proposing to revise and revamp nomination facilities shares, bonds, units of mutual funds (held in both, demat and non-demat form, i.e. Statement of Account), units of Real Estate Investment Trusts (REITs), Alternative Investment Funds (AIF), and other securities held in the dematerialised form.

This has followed in view of the increase in unclaimed financial assets due to incomplete nominations and/or unavailability of nominations in the securities markets. Given this, the regulator plans to revise and revamp the nomination framework for financial assets or securities, which can help in reducing unclaimed assets as well as smoothen the process for surviving family/beneficiaries/successors of deceased investors.

The objective behind it is to provide convenience to investors and institutions as regards the uniformity in the facilities and procedures for the transmission of financial assets and affording certain choices and flexibilities in nomination facilities.

Moreover, the regulator plans to make operational the revised and revamped nomination without affecting the prevalent systems of law governing transmission and succession, be it:

• The rule of survivorship in case of joint ownership or joint holding
• When the person has died leaving a Will, and
• When the investor/account holder has died intestate, i.e. without a Will

Say, it is a case of joint ownership or joint holding in the case of shares and mutual funds. Here, the rule of survivorship shall apply after the death of one of the account holders, wherein, the right, title, and interest to the demat account or the units of mutual fund schemes will be transmitted to the surviving joint holders/owners. Moreover, SEBI has proposed that no documentation, including related to KYC, indemnities, or undertakings, shall be required from the surviving joint holders/owners. Further, the joint holders/owners are entitled to continue with, change or cancel the nominations made previously.

If the person/investor has died leaving a Will, then the manner of distribution of the assets will be done as per the Will by the executor of the Will (following a judicial process called ‘probate’).

In case the person/investor has died intestate, i.e. without leaving a Will, on the application of the interested person, the court would appoint an administrator, and the further process of succession certificate and/or legal heirship certificate must be followed.

[Read: How to Go About Transmission of Mutual Fund Units In the Event of Death]

Note, in the case where the nominee passed away during the lifetime of the investor, the legal heir/s or legal representative/s of such deceased nominee, are not entitled to any right, title or any interest in the financial assets of the investor upon the investor’s death solely by virtue of nomination.

[Read: Planning Your Legacy: Why Estate Planning Matters More Than Ever]

Notwithstanding these conventions, the capital market regulator has proposed the following additional measures:

To Identify Nominee/s – When an investor opts-in to make nomination/s, then personal Identifiers (such as the name of either parent and/or number of any Government ID: PAN, Passport, Aadhaar, etc.) and Contact details of the nominee/s (such as physical address, email address, telephone/mobile number) should be provided by the investor/s. According to SEBI, doing so shall aid contact-ability and identification of the nominee/s upon the investor’s death. The existing investors can be provided with an option to update such personal identifiers. Completion or updating of the KYC of the nominees during the lifetime of the investors will be optional.

When the nominee/s is a minor, investors must be given an option to specify the guardian.

Multiple Nominees – The nomination facility should permit multiple nominee/s and be increased from the current limit of three to very high two digits or to very high three digits (i.e., 99 or 999), which are large and sufficiently high to address ordinary requirements of individual investors.

Permit Specification and Percentage Share of Nominees – The investor should be permitted to specify his/her share of nomination (in case of multiple nominees), and in the absence of which it shall be divided equally among all nominees. In case of two or more nominees, such nominees shall not constitute joint holders/owners unless all such nominees agree to be constituted as joint holders/owners.

Changes and Cancellation in Nomination – Nominations should be made, changed or cancelled in a safe, secure, verifiable manner, i.e., by use of a digital signature certificate or Aadhaar-based e-Sign or physical signatures of the investors or through dual authentication (viz. OTP on registered mobile number and/or email, biometrics, etc.).

Where the nomination is done by affixing a thumb impression, the same shall be in the presence of two independent witnesses.

Whichever the case may be, the regulator has clearly stated that an acknowledgement of making, changing or cancelling a nomination shall be provided to the investor/s, and the regulated entities should maintain due records.

Moreover, the regulator has proposed allowing nominations to be made, changed, or cancelled at any time without restriction.

Provide Due Information on Nominee/s – The information about the nomination and the extent of the holding shall be made available on request to the investor/s (including through account aggregator service).

Apart from the above, the regulator has also proposed giving an option to the investor that, on being permanently or temporarily incapacitated, the nominee/s can conduct the transaction (by following the requisite procedure). In case it is a single nominee, such a nominee would be authorised to conduct the transaction. However, if there are multiple nominees, the investor would need to specify which nominee will be authorised to conduct transactions.

To give effect to these proposals, the capital market regulator has also articulated that depositories, registrar & transfer agents, and asset management companies must update and upgrade their systems, processes and procedures for the nomination facilities and to maintain records of the nomination made, changed, cancelled for the period prescribed.

The proposals in the consultation paper on nomination are open for public comments till March 8, 2024. To us, it appears that many of the aforementioned proposals by SEBI are in the investors’ interest and intended to provide ease and convenience. The regulator regards them as safe, secure, and reliable concerning nomination and may reduce the unclaimed assets in the financial markets.

Ensure you are being thoughtful and opting in for nomination for your investments.

[Read: SEBI Extends MF Nomination Filing Deadline to June 30, 2024]

Happy Investing!

This article first appeared on PersonalFN here