The stock market regulator has rolled back key aspects of its January 2025 framework overhauling nomination rules governing demat accounts and mutual fund folios, after acknowledging in March challenges in the new system that was aimed to reduce unclaimed investor assets.
In a circular issued on Friday, the Securities and Exchange Board of India (Sebi) reverted to its previous framework. The January 2025 framework had aimed to “revise and revamp” nomination facilities across the securities market, but many of its proposals were cumbersome in practice.
The new norms included a rule to allow nominees to operate accounts of incapacitated investors, mandatory capture of extensive nominee details, video-based opt-out processes for investors unwilling to nominate, and an increase in the maximum number of nominees from three to 10.
By March 2026, Sebi had formally acknowledged the concerns in a consultation paper seeking public comments on modified nomination rules. The regulator admitted that some provisions had faced “operational challenges” and could hamper investor onboarding.
Key changes
Two months since, Sebi has dropped the move idea to raise the cap on nominees from three to 10. Instead, investors will continue to be allowed up to three nominees. Industry participants had argued that a 10-nominee structure would strain systems while serving little practical purpose.
Sebi has also removed a video-based mechanism for opting out of nominations. Under the revised framework, nomination will remain the default option for single-holder accounts and folios, but investors can opt out through a declaration, either online or offline.
The new norms will come into effect from September 2026.
The regulator also diluted documentation requirements for nominees. Instead of seeking detailed information such as address, email, mobile number, personal identifiers and percentage allocation as mandatory fields, Sebi has now restricted mandatory disclosure to just the nominee’s name and relationship with the investor. Other details will remain optional.
Investor outreach
"The new framework is more practical as market participants had given feedback than 10 nominees was difficult to manage. The norms appear to align well with proposed Digital Personal Data Protection (DPDP) rules, as one need not collect and protect details of a larger number of nominees," said Sandeep Bagla, chief executive officer of Trust Mutual Fund.
For existing and new demat accounts or mutual fund folios which have opted out of having nominees, depositories or mutual fund registrar and transfer agents (RTAs) are mandated to send bi-annual messages to investors nudging them to provide nomination. Additionally, they also have to display the benefits of nomination on the first log-in of the day into the account.