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