SEBI Eases Regulations: Demat Accounts and Mutual Fund Portfolios Won’t Be Frozen Over Non-Nomination

In a move to simplify compliance and ease investor concerns, the Securities and Exchange Board of India (SEBI) has announced that demat accounts and mutual fund portfolios will no longer be frozen due to the non-submission of a choice of nomination. This decision comes after receiving feedback from market participants, indicating the need for more flexible regulations.

Previously, SEBI had set a deadline of June 30 for all individual mutual fund holders to either nominate a beneficiary or formally decline to do so. Failure to comply with this regulation would have resulted in the freezing of their accounts, preventing any withdrawals. However, the latest circular issued by SEBI on Monday highlights a significant shift in this approach.

Key Changes in SEBI’s Regulations

Payments Without Nomination: Investors holding securities in physical form will continue to receive payments such as dividends, interest, or redemption amounts, even if they haven’t submitted a choice of nomination. They can also submit grievances or request services from Registrars to Issue and Share Transfer Agents without providing nomination details.

Non-Freeze Assurance: For existing investors or unitholders, SEBI has clarified that the non-submission of a choice of nomination will no longer result in the freezing of demat accounts or mutual fund folios. This decision aims to enhance investor convenience and compliance ease.

Processing Withheld Payments: Any payments currently withheld by listed companies or RTAs due to the lack of nomination submission will now be processed accordingly.

Requirements for New Investors

While the new regulations offer relief to existing investors, all new investors or unitholders are still required to mandatorily provide a choice of nomination for demat accounts and mutual fund folios. This rule does not apply to jointly held demat accounts and mutual fund folios.

Encouraging Nomination Updates

SEBI has urged depository participants, AMCs, and RTAs to encourage demat account holders and mutual fund unitholders to update their nomination choices. This will be facilitated through fortnightly communications via emails and SMS, guiding investors on how to provide their nomination details.

From October 1, a pop-up reminder will also be displayed on web or mobile platforms by depositories and depository participants when investors log into their demat accounts, as well as by AMCs for mutual fund accounts.

Simplified Nomination Process

SEBI has introduced a simplified format for providing or opting out of nominations for both demat accounts and mutual fund folios. Investors will only need to provide three mandatory fields: name of the nominee, share of the nominee, and the relationship with the applicant.

This regulatory relaxation by SEBI is a welcome step towards making the investment process more investor-friendly and less cumbersome, ensuring smoother operations for both current and new investors.