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New SEBI Proposal for Mutual Fund Nominee

28 Feb 2024 - Tushar
Reading time about 2 minutes

In a move aimed at streamlining processes and enhancing convenience for investors, the Securities and Exchange Board of India (SEBI) has recently put forth a new proposal.

SEBI Nominee proposal This new proposal is to eliminate the mandatory requirement of nomination in joint mutual fund (MF) folios. The proposal was detailed in a consultation paper released by SEBI, which stated, “The working group has recommended that the requirement of Nomination may be made optional in case of jointly held folios.”

Currently, under existing regulations, all joint holders of mutual fund folios are obligated to designate nominees. However, the proposed change seeks to make this nomination process optional, offering investors greater flexibility in managing their investment portfolios.

While the proposal suggests optional nomination, it’s crucial to understand the importance of nomination in securing the interests of investors. Nomination ensures that in the unfortunate event of the demise of the investor, the designated nominee can seamlessly claim the investment proceeds without the need for lengthy legal procedures. It provides a vital layer of protection and ensures that the intended beneficiaries receive the benefits of the investment without complications.

Despite the proposal to make nomination optional, investors are encouraged to carefully consider the significance of nominating a beneficiary to safeguard their investments and provide clarity on the distribution of assets in case of unforeseen circumstances.

In the event an investor wishes to add or change a nominee for their mutual fund investments, the process is relatively straightforward. Investors can initiate the nomination process by filling out a nomination form provided by the mutual fund house. The form typically requires details such as the name, address, date of birth, and relationship with the nominee. Once the form is duly filled and submitted along with necessary supporting documents, the mutual fund registrar updates the records accordingly.

SEBI justified this proposal by highlighting that in the event of the demise of one of the joint holders, the surviving holder automatically assumes precedence over the designated nominee during the transmission of units. Consequently, the risk of unclaimed units is significantly diminished.

The primary objective behind these proposed amendments is to streamline procedures and foster an environment conducive to business facilitation. SEBI aims to simplify compliance requirements and enhance the overall investor experience in the mutual fund industry.

This initiative is part of SEBI’s broader efforts to rationalize regulations and promote ease of doing business in the financial markets. Earlier, SEBI had established a Working Group (WG) tasked with recommending measures to simplify and streamline compliance procedures across various SEBI regulations.

By proposing optional nomination for joint MF folios, SEBI endeavors to strike a balance between regulatory compliance and investor convenience, ultimately contributing to a more investor-friendly ecosystem in the Indian mutual fund industry.