SEBI suggests nomination for jointly-held investments to be made optional

In jointly-held investments, in the event of death of one of the account holders, the rule of survivorship will apply as is currently the case.

After repeated deadline extensions to mutual fund investors and demat account holders to complete their nomination – that is, either choose a nominee or opt out of nomination, the Securities and Exchange Board of India (SEBI) now has a new suggestion.

In a consultation paper released on February 2, SEBI has suggested that nomination be made optional and not mandatory for jointly-held mutual fund folios and jointly-held demat accounts. Note that, in case of investments in the name of a single holder, the investor will have to mandatorily complete his / her nomination.

In jointly-held investments, in the event of death of one of the account holders, the rule of survivorship will apply as is currently the case. “Accordingly, when two or more persons have opened a demat account or jointly own units of mutual fund schemes, on death of any one of them, 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,” elaborated the paper. Comments on the paper can be sent to SEBI until March 8, 2024.

It was only about a month ago that SEBI extended the deadline for completing nomination from December 31, 2023 to June 30, 2024. This was to prevent investors with pending nominations to face a freezing of their accounts. Many investors have been facing difficulties in updating nomination in case of jointly-held investments (as highlighted in our earlier article).

Data in the consultation paper shows that 27.2 percent of jointly-held mutual fund folios and 6.2 percent of jointly-held demat accounts still have incomplete nomination - no nominee / no explicit opt-out of nomination.

While the suggestion to remove mandatory nomination may come as a relief to those facing difficulties in completing nomination, financial experts we spoke with emphasized on the importance of still having a nominee. This is especially so in situations where all the joint holders pass away. Then, having a nominee ensures that the financial asset gets smoothly passed on to the surviving family / legal heirs of the deceased.