SEBI comes to the rescue, eases transmission of investments to family members after an investor’s demise

Securities market regulator SEBI has announced the introduction of a centralised mechanism to record an investor’s demise across investment products in one go.

Securities market regulator SEBI has announced the introduction of a centralised mechanism to record an investor’s demise across investment products in one go. Once the joint holder or the nominee or a family member reports an investor’s demise to a SEBI-regulated entity, the same will be updated across all such entities. This will provide huge relief to the surviving family members.

Currently, this detail has to be updated separately with every entity in which the deceased held any investments, including mutual fund houses, brokerages, portfolio management services (PMS), and alternate investment funds (AIF). Given that the processes followed and the documentation required varied from entity to entity, this was a complex process. That is set to change from next year.

The SEBI circular outlining the broad details of this centralised mechanism was issued on October 3. The details on how exactly they will be implemented will be known due course, once a common SOP (standard operating procedure) is laid out. The circular is to take effect from January 1, 2024.

“This is a very welcome move and will make the process hassle-free and help the deceased investor’s family members. But it’s too early to say what the process will be. We have to wait for the SOP. Also, the process will evolve overtime,” said Sunil Nair, Chief Operating Officer, MF Utilities, a mutual funds platform backed by industry body, AMFI.

Also read: 95% of investment advisers penalised by SEBI provide trading calls: Study

What is set to change

Today, when an investor passes away, the joint holder / nominee / family member (as the case may be) has to inform every mutual fund house, broker etc. about the investor’s demise so that the investment account details are updated accordingly. The process and documentation required is also different across different entities. “SEBI is talking about a standardised process across all SEBI-registered intermediaries. So, you won’t have to, say, go to every mutual fund AMC (asset management company) to update the deceased investor’s details. If you do this with one AMC, then it will get updated across all the AMCs where that person had investments,” said Vishal Dhawan, Founder & CEO, Plan Ahead Wealth Advisors.

Also read: Confused about which mutual funds to invest in? Check out MC30

A few industry people we spoke with said that, based on their reading of the circular, what will happen is that the joint holder / nominee / family member of a deceased investor will have to inform any one intermediary—AMC, brokerage, PMS etc—and provide them the deceased investor’s death certificate and PAN. After verification, the intermediary will pass this information to the KRA (KYC registration agency) the same day. Alongside, it will block the investor’s account for debit transactions. Once the KRA independently verifies the documents, it will update the account status to ‘blocked permanently’ and pass this information on to all other intermediaries.

The intent of blocking is to prevent any fraudulent transactions until the investment is handed over to the rightful person.

However, in the case of jointly held investments (in either or survivor, or anyone or survivor mode – where any of the joint holders can operate the account), the account will continue to operate.

Commenting on how the latest SEBI move will serve investors, Kashmira Kalwachwala, Head Investor Services, Tata Mutual Fund said, “The SEBI circular puts the onus on the intermediary to update the KRA regarding the demise of an investor by submitting a KYC modification request. The KRA shall update the KYC record and intimate this updation to all linked intermediaries so the change can reflect across all intermediaries. This will help to put in place a common standard operating procedure, thereby providing convenience to investors (to those inheriting the investment).”

Also read: HDFC AMC changes asset allocation of retirement fund; what should you do?

Other issues

While the SEBI move is a big step towards making the transmission of investments simpler, there are other things that the nominee / family member will still have to pursue.

“Remember, the nominee is only a custodian and the succession process still needs to happen. This will be governed by the will; if the deceased has written one, or in the absence of that, by the relevant succession laws,” said Dhawan.

The centralised system will help update the KYC across deceased person’s investments and block them for safety reasons. These accounts will be made operational once the nominee / family member submits the relevant documents to the intermediaries.

But as Lindo Paul, AVP, Business, Zerodha points out, many a times, the family members may not even know about all the investments of the deceased investor. “If there could be a system where you could check for all the investments in one place, that could be very helpful. That could perhaps be the next step as part of what SEBI is implementing,” said Paul.

Investors should also note that the arrangement of blocking accounts after the demise of an individual is applicable only to SEBI-regulated entities. Bank accounts, insurance policies and other assets still need to be tracked separately.