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Business News/ Money / Personal Finance/  Over two-thirds of demat accounts are without nominations: Sebi
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Over two-thirds of demat accounts are without nominations: Sebi

Sebi has set a deadline for account holders to nominate beneficiaries or formally opt out, warning that non-compliance would lead to account deactivation

As per Sebi data, India has 136 million demat accounts. (Photo: Mint)Premium
As per Sebi data, India has 136 million demat accounts. (Photo: Mint)

New Delhi: An alarming 9.8 crore (72.48%) out of 13.6 crore demat accounts in single holding are missing nomination details, according to a consultation paper released by market regulator Securities and Exchange Board of India (Sebi), on Friday.

This comes amid record increases in demat account registrations, posing significant risks to a vast number of investors. Notably, 69.73%, or 9.51 crore, account holders have deliberately chosen not to nominate, while approximately 2.76% are in a limbo, having neither nominated nor opted out.

(Graphics: Mint)
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(Graphics: Mint)

In contrast, mutual fund (MF) folios exhibit a stronger adherence to nominations, with only 6% opting out and 8% neglecting to nominate or opt out among 8.90 crore MF folios.

In joint holdings, 31% of demat account holders and 7% of mutual fund folios have opted out of nominations. However, a higher portion of mutual fund folios in joint holding, 27.19%, have neither nominated nor opted out, compared to just 6% for demat accounts.

This anomaly between demat accounts and mutual funds is attributed to new-age stock brokers who bypass the nomination process. A person with knowledge of the matter said brokers are opting out of nominations on behalf of demat account holders, that is, they have been updating the nomination field without the consent of the account holder.

Sebi had initially set a 31 March 2023 deadline for account holders to nominate beneficiaries or formally opt out, warning that non-compliance would lead to account deactivation. Subsequently, the deadline was extended to 30 September and 31 December 2023. To avoid deactivation, some stock brokers updated details without reaching out to account holders as the deadline approached.

Last month, Sebi extended the deadline for the third time to 30 June 2024.

Mohini Mahadevia, founder of SOLUFIN, a Mumbai-based investment and estate planning firm, cautions that without a valid nomination, accessing demat account holdings becomes a complex and lengthy process for legal heirs, potentially involving probated wills, letters of administration, or succession certificates.

It is to be noted the nominee is merely a custodian of the securities till the legal heir inherits the same. Creating a will ensures the smooth inheritance of assets and properties. “It is always suggested to mirror the nomination with the contents of the will to avoid conflict between the nomination and subsequent bequest to a legal heir," Mahadevia said.

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Published: 02 Feb 2024, 07:30 PM IST
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