The Securities and Exchange Board of India, through a circular dated 10 January 2025, introduced a comprehensive overhaul of the nomination framework for demat accounts and mutual fund folios. The circular aims to reduce the generation of unclaimed assets in the Indian securities market by making nomination the default option and expanding the maximum number of permissible nominees.
Background
India's securities market has witnessed a growing volume of unclaimed assets — securities and mutual fund units that remain with intermediaries after the death of account holders, often because no valid nomination was in place. SEBI had identified the absence of nominations as a key contributor to this problem, with millions of demat accounts and mutual fund folios lacking any nominee information.
The existing framework permitted a maximum of three nominees per account and did not mandate nomination at the time of account opening. SEBI undertook a consultative process to redesign the nomination architecture, resulting in this circular.
Key Provisions
The revised framework introduces the following changes:
Nomination as default: Nomination will be the default option when opening new demat accounts and mutual fund folios. Investors who do not wish to nominate must actively opt out through a documented declaration.
Expanded nominee limit: The maximum number of nominees has been increased from three to ten, though SEBI has indicated that this may be revised to four following operational feedback. Joint holder limits remain at three.
Periodic nudging for existing accounts: Intermediaries — including depository participants, asset management companies, and registrar and transfer agents — must periodically contact holders of existing accounts without nominations through email, SMS, and other communication channels to encourage completion of the nomination process.
Simplified succession process: The circular introduces streamlined procedures for transmission of securities to nominees upon the death of the account holder, reducing the documentation requirements that have historically caused delays.
Phased implementation: The circular adopts a multi-phase rollout. Phase I covers the default nomination mechanism for new accounts. Phase II, originally scheduled for June 2025, addresses the nudging framework for existing accounts. Phase III introduces enhanced verification and compliance monitoring.
Implications for Practitioners
This circular has broad implications for securities market intermediaries and legal practitioners advising on estate and succession matters. Depository participants and mutual fund distributors face immediate compliance obligations regarding system changes to implement the default-nomination mechanism.
For estate planning practitioners, the expanded nominee framework offers greater flexibility in structuring succession plans for securities holdings. The ability to designate up to ten nominees with specified percentages allows more granular distribution planning.
However, practitioners should note that a nominee under securities law is not the same as a legal heir — a distinction that continues to generate litigation. The nomination confers only the right to receive the securities upon the holder's death; the nominee holds them as a trustee for the legal heirs unless the nominee is also the sole legal heir. Clients should be counselled to ensure their nominations align with their testamentary intentions.