Demat: How does share transfer work in case account holder passes away? MintGenie explains
Dealing with a deceased individual's demat account involves legal complexities and procedural steps. The transmission process for shares post death has been streamlined by SEBI, ensuring protection of assets and smooth transfer to beneficiaries.
In the somber aftermath of a loved one's passing, families are often confronted with various practical matters amidst their grief. One such concern is the management of the deceased individual's assets and financial affairs, including their demat account holdings.
Navigating the legal and procedural aspects of handling a demat account after the demise of its holder can be a challenging and sensitive task. In the wake of such events, understanding the necessary steps and procedures becomes crucial to ensuring the seamless transfer of securities and compliance with legal formalities.
The Securities and Exchange Board of India (SEBI), the regulatory authority overseeing Indian capital markets, has been urging all demat and mutual fund account holders to add nominee details. This initiative aims to assist investors in safeguarding their assets and facilitating the smooth transfer of holdings to their rightful heirs.
Notably, in October of the previous year, SEBI eased the process for transferring securities from the account of a deceased individual. In this article, we will delve into the process of transferring shares from a deceased person and explore how to manage them thereafter.
Transfer Process: Steps for Transferring Shares
A dematerialised (demat) account acts as a digital vault for the financial securities purchased by an investor, storing them in electronic format. This account simplifies the storage and management of financial securities, providing convenience and accessibility to investors.
Having a demat account is essential for anyone wishing to trade in the Indian stock market. These accounts are offered by depository agencies, primarily CDSL and NSDL, both of which are registered with the market regulator.
On the other hand, transmission refers to the transfer of securities from the account of a deceased holder to a joint holder, nominee, or legal heir.
According to SEBI's streamlined procedure, which came into effect on January 1, 2024, for the seamless claiming of shares and mutual fund units, the transmission process is straightforward and easy.
Upon verifying the necessary documents, all debit transactions in the deceased investor’s account will be immediately halted to prevent any unauthorised or erroneous activity. This precautionary measure ensures the protection of the deceased investor’s assets during the transition process.
Within five days of confirming the death, the concerned family member or nominee will receive comprehensive guidance on the procedures required to transfer the shares. Additionally, the KYC (Know Your Customer) status of the deceased investor will be promptly updated to “Blocked Permanently." This critical step ensures that no further transactions can occur under the deceased person’s name, providing a safeguard against potential misuse or unauthorised access.
The demise of an investor can be reported by various parties, including joint account holders, nominees, legal representatives, and family members. This report initiates the necessary protocols to secure the investor’s assets and facilitate the seamless transfer process to the designated beneficiaries.
Post-Transfer Management
Once the shares have been successfully transferred to the designated beneficiaries, managing the demat account becomes the responsibility of the new account holder. This involves keeping track of the holdings, monitoring market movements, and ensuring compliance with regulatory requirements.
Additionally, the new account holder may need to update personal details and contact information with the DP to ensure smooth communication and operation of the demat account. Regular review and management of the demat account are essential to safeguarding the assets and optimise investment decisions.
FAQs
What is the meaning of ‘nomination’?
Nomination refers to the process wherein a securities holder designates an individual to receive the securities in the event of their demise. This preference can be communicated either during the opening of the demat account or at any later stage.
Is nomination nandatory for a demat account?
According to SEBI regulations, it is mandatory to nominate individuals for a demat account. If the account holder(s) chooses not to nominate, they must provide a written and signed declaration to this effect.
According to SEBI, the deadline for demat and mutual fund account holders to furnish a nomination is June 30, 2024.
Who is eligible to nominate?
Nomination rights are reserved for individuals who hold beneficial accounts, whether singly or jointly. Entities such as societies, trusts, corporations, HUF Karta, or holders of POA are not eligible to nominate.
Why is nomination essential?
Nomination facilitates the seamless transmission of shares in the event of the primary account holder's demise. Once nominated, the beneficiary can be changed at the account holder's discretion, ensuring flexibility and security for the account holder(s).
Can joint holders nominate?
Yes, joint holders are allowed to nominate beneficiaries. However, in the unfortunate event of the death of any joint holder, the securities will be transferred to the surviving holder(s). Only if all joint holders pass away will the securities be transferred to the nominee, provided a nomination exists; otherwise, they will be transferred to the legal heir(s).
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