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The Securities and Exchange Board of India (Sebi) has mandated investors to either specify a nominee or explicitly opt-out of nomination for all mutual fund (MF) investments.

What’s changed

As per a recent Sebi circular, any new investor subscribing to an MF scheme from 1 August will either have to specify a nominee or submit a signed declaration to opt out of nomination. Existing MF investors will also have to either specify a nominee or opt out of nomination. The deadline for this is 31 March 2023. Failure to do so will result in the MF folio getting frozen, implying that investments cannot be redeemed.

AMCs will have to provide investors the option of submitting either the nomination form or the declaration form to opt out of nomination. They may do so either physically or online.

Jimmy Patel, MD & CEO, Quantum AMC, explains that post the circular, nothing has changed for those holding MF units in their sole capacity. That’s because in such cases, investors have already been either filling the nomination form or signing a declaration opting out of nomination. What has changed is that unlike before, from 1 August, whenever a MF investment is made jointly, the folio must compulsorily either have a nominee or a declaration opting out of nomination. Existing joint MF investors have time until 31 March 2023 to comply.

While this appears to be a step in the right direction, there are mixed views on this move.

According to Patel, complying with the latest Sebi direction on nomination may turn out to be a cumbersome process online, in case of jointly-held folios. This will require all the joint holders to e-sign the nomination form. “E-signatures are typically linked with Aadhar and so only Aadhaar card holders can e-sign. Also, many investors may not be tech savvy enough to do this easily," says Patel. For this to be implemented, all the joint holders will also have to furnish their email IDs and phone numbers to the AMC. “Today, typically the first holder opens the account and he / she can simply add the details of the other joint holders. Now, all the joint holders will have to be involved in the process." Doing the nomination process physically may be turn out to be easier for many investors. He also highlights that some clarity will be needed in case of MF accounts held in a minor’s name.

According to Prableen Bajpai, founder, FinFix Research & Analytics, one must always opt for a nominee, irrespective of whether it is mandated by the regulator or not.

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