Yesterday, SEBI announced new Mutual Funds and Stocks NOMINATION Rules. Let us see the details of these new rules and how they impact your investments.
In the realm of investing, the significance of nomination cannot be ignored. Unfortunately, many individuals overlook this crucial basic element and assume that they will live indefinitely. Designating family members as nominees for all your investments is a fundamental step in the investment process. Therefore, it is essential to understand the nomination regulations pertaining to mutual funds and stocks.
New Mutual Funds and Stocks NOMINATION Rules – 2024
To establish uniformity among all securities regulated by SEBI, new nomination rules for mutual funds and stocks were introduced by SEBI yesterday. Let us look into all these new changes. Do remember that these rules will be uniform all the the securities that comes under SEBI.
# The maximum number of nominees has now been raised from the current limit of 3 to 10. This allows you to nominate as many as 10 individuals for your investments.
# Nominees are now permitted to represent investors who are incapacitated (unfit to do normal activities), provided that specific risk mitigation measures are in place. However, it is prudent to await further clarification on this matter, as the details regarding these risk mitigation measures remain unclear at this time.
# The process of transferring holdings to nominees or joint holders has been streamlined, requiring minimal documentation. This development is, in my opinion, a significant alleviation. In the absence of this simplification, nominees or joint holders often face considerable challenges in securing the transmission of assets following the death of the investors.
# Nominees are now required to submit one of the following three forms of unique identity proof: PAN, Passport, or Aadhaar numbers.
# The most significant alteration resulting from these new regulations is that nominees are no longer permitted to behave as if they possess ownership of the holdings. Instead, nominees who receive the investments will serve as trustees for the legal heirs of the investor.
It is a common misunderstanding that the mention of a nomination in relation to investments implies that the nominees possess rights over the assets. This is not the case. Nominees serve as trustees, responsible for transferring the assets to the legal heirs or in accordance with the provisions of the WILL (To know more about WILL, refer to my earliest post “How to write a WILL in India? | Download Sample WILL format“.
# In the context of joint ownership, the rule of survivorship takes precedence over any nominee designation or WILL. The doctrine of survivorship is a legal concept that asserts that upon the death of one co-owner of an asset, their share in the asset is automatically transferred to the remaining co-owners. This transfer occurs irrespective of the provisions outlined in the deceased owner’s will.
# Legal heirs of a deceased nominee will not have any rights.
# If securities have already been pledged, lenders will have priority rights over those securities prior to their transfer to nominees.
# Nomination will be optional for joint demat accounts and mutual fund folios held jointly. For accounts held solely by an individual, opting out will necessitate the necessary confirmations as specified.
# There is no such limit in changing nominations. You can change the nominee as many times as you wish.
# Investors will get the nomination details along with details like apportionment of assets to surviving nominees.
# If a nominee is minor, then the old rule of specifying the guardian will continue.
Conclusion – The SEBI has addressed numerous uncertainties that investors may have had by standardizing the nomination rules for securities. It is essential to update your nomination if you have not already done so or to verify the nomination for all your securities. This is a critical component of the investment process.
