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SEBI's new rule of not freezing demat and MF folios over nomination failure for existing customer

ICICIdirect 5 Mins 21 Jun 2024

You have not added nominee details to your Demat and mutual fund folio. Are you worried that your Demat account will freeze now? Though it is good to give nominee details for all your investments, if you have not for your mutual fund, your account will not freeze. As per SEBI's previous circular, the accounts without nominee details were to be frozen. However, as per SEBI's recent circular, it will not freeze the Demat account of investors in the absence of nomination details. Let us look at the new circular in detail.

SEBI's rule

As per the new rule, in the event of non-submission of 'choice of nomination', your Demat and MF folio account will not freeze. At the same time, the market regulator has extended the deadline for existing MF investors to submit their 'choice of nomination' till the end of the month - 30 June 2024. Here is how the new rule will benefit you and other investors:

  • Prevents Disruption: This change ensures existing investors can continue to access and manage their investments even if they have not submitted a nomination yet.
  • Focuses on Awareness: The emphasis seems to be shifting towards encouraging investors to nominate beneficiaries rather than penalizing them for not doing so.

Choice on Nomination

The 'choice of nomination' refers to the process by which an investor designates one or more individuals (nominees) to receive the benefits of their investment holdings in the event of the investor's death. It is a legal arrangement that ensures investors' assets are transferred smoothly and directly to the chosen nominees without undergoing the lengthy and often complicated probate process.

In case of

  • Demat accounts - depository participants
  • Mutual fund folios - AMCs and RTAs

shall encourage the demat account holders/ mutual fund unit holders to update the ‘choice of nomination’. It will be encouraged by sending a communication on a fortnightly basis (two weeks) via emails and SMS to all such unit holders who have not provided the ‘choice of nomination’. The communication should guide demat account holders/mutual fund unit holders to provide a ‘choice of nomination'.

Also, to encourage the existing investors to provide a ‘choice of nomination’, a pop-up shall be provided on the web/mobile application/platform to the investors by depositories and depository participants while logging into the demat account and by AMCs (including MF RTAs, other platforms providing online execution services).

Other Important Points

Please note that the new rule applies only to existing investors - if you are already invested. If you are a new investor opening demat accounts or MF folios, you have to complete the nomination process. While investors benefit from this rule change, companies managing demat accounts or MFs will continue to encourage nomination completion for better record-keeping and smoother inheritance processes.

To keep things simple, the latest circular said that only three fields are to be provided mandatorily for updating nomination - nominee name, percentage allocation, and relationship with the account holder.

Before you go

SEBI's new rule offers more flexibility for existing investors regarding demat and MF account nominations. However, we highly recommended to nominate a beneficiary for all your investments (FDs, property, mutual funds, etc) to ensure a hassle-free inheritance process for your loved ones.

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