SEBI has proposed easing nomination rules for demat accounts and mutual fund folios, reducing mandatory nominee details to just name and relationship, capping nominees at 4 (down from 10), and simplifying opt-out processes to address industry feedback on operational challenges.
SEBI's Proposed Changes to Demat/MF Nominations
1. Fewer Mandatory Nominee Details
- Earlier: Address, contact info, ID proofs mandatory.
- Now proposed: Only name + relationship mandatory; all other details optional.
- Rationale: "Onerous process" causing investor drop-off during account opening.
2. Nominee Cap Reduced to 4
- 2025 circular: Increased from 3 to 10 nominees.
- New proposal: Cap at 4 nominees (aligned with banking norms).
- Reason: Operational strain; data shows most investors use ≤3 nominees.
3. Simpler Opt-Out Process
- Earlier: OTP + physical declaration/video recording.
- Now: Digital consent pop-up with nomination benefits explanation.
- Default: Nomination enabled; opt-out via simple consent.
4. Operational Control via Power of Attorney
- Drops complex nominee control for incapacitated investors.
- Reverts to standard Power of Attorney mechanism.
Deadline for Comments: 7 April 2026.
Why SEBI is Revisiting Nomination Rules
Industry Feedback on January 2025 Circular:
- High costs for audit trails
- Legal dispute risks
- Complex nominee verification
- Investor drop-off during KYC
- Operational implementation challenges
SEBI's Goal: Balance investor protection with practical implementation.
Strengths of SEBI's Proposed Changes
- Investor-friendly onboarding – fewer mandatory details reduces friction
- 4-nominee cap aligns with banking norms, practical for most families
- Simple digital opt-out eliminates physical/video verification hassles
- Power of Attorney reversion leverages existing legal framework
- Periodic reminders continue for non-nominated accounts
Potential Risks of Simplified Rules
- Fewer nominee details may complicate asset transmission verification
- Default nomination could lead to unintended nominee assignments
- Operational control gaps during investor incapacity periods
- Equal distribution default may not reflect investor intent if % not specified
FAQs
1. What changes is SEBI proposing for demat account nominations?
Only name + relationship mandatory (address, contact optional); cap reduced to 4 nominees; simpler digital opt-out; Power of Attorney for incapacitated investors.
2. Why is SEBI reducing nominee details from mandatory to optional?
Industry feedback showed onerous KYC causing investor drop-off. Name + relationship sufficient for identification.
3. What happens if I don't specify nominee share percentages?
Equal distribution among nominees by default – simplifies process but may not reflect exact intent.
4. How will investors opt out of nomination under new rules?
Digital pop-up consent explaining nomination benefits, no OTP/physical declaration needed.
5. When will these SEBI nomination changes take effect?
Public comments due by 7 April 2026; final circular expected after review.
