September 30th, 2024, SEBI has announced new nomination rules for mutual funds and stocks.
The fact is that nomination is one of the fundamental and crucial parts of your investment that is usually underrated. Let’s understand the changes to ensure your hard-earned invested money is well nominated.
The new nomination rule has been introduced to bring uniformity to all the securities SEBI regulates.
New Nomination Rules for Mutual Funds and Stocks
- 1. With the new rule, the maximum number of nominees has increased from 3 to 10, allowing you to nominate up to 10 individuals for your investments.
- 2. New nomination rules for mutual funds and stocks enable nominees to represent incapacitated investors while implementing specific risk mitigation checks and balances.
- 3. Nominees are now allowed to represent incapacitated investors (those unable to perform everyday activities), considering risk mitigation is in place (as per my understanding because nominees can represent the investor, they must consider investor risk profiling and should not invest based on their risk appetite. However, it’s wise to wait for further clarification, as the specifics of these measures are still unclear.
- 4. Streamlining the process of transmission to nominees and joint holders with minimal documentation. As for me, it was a much-needed change, and now investors can be relieved that their hard-earned invested money will reach the right place smoothly upon demises. You can learn more about process for transmission of mutual fund units upon the unitholder’s death.
- 5. Nominees must submit one of the following three forms of unique identity proof for the same: PAN, Passport, or Aadhaar numbers.
- 6. One of SEBI’s most significant changes/clarifications is that the nominee is not a beneficiary. Nominees to whom investments are transmitted will act as trustees for the investor’s legal heirs. In most cases, people think the nominee is not a beneficiary; however, they are not, and that’s where WILL plays a significant role. I have written a detailed article on WILL Writing; you must read my article “How To Create Will In India- Download Sample Will Draft.”
- 7. In cases of joint holdings, the rule of survivorship will apply. If one holder dies, the co-holder portion will be transferred to the surviving holder for joint holdings.
- 8. Nomination will be optional for joint demat accounts and jointly held mutual fund folios. For individually held accounts, opting out will require specified confirmations.
- 9. Nomination can be changed any number of times; there is no limit to this.
- 10. There won’t be a change in rue for minor nominees. Like earlier, the option to mention guardians for minor nominees will be available.
Conclusion
In my understanding, SEBI has started understanding how investors face issues post-investment and taking steps to make the process easier for investors. It is essential to verify your nomination if not yet done for all your securities. This is a vital part of the investment process. If you are working towards your financial plan or planning to work and use the MFU portal of mutual fund investing, you can verify by logging in.
