Fewer nominee details, new cap: What changes SEBI is proposing for demat accounts, MF investors

Markets regulator SEBI has proposed a fresh set of changes to nomination norms for demat accounts and mutual fund folios, including reducing mandatory nominee details and capping the number of nominees at four.

The Securities and Exchange Board of India (SEBI) released a consultation paper on Tuesday, March 17, seeking public comments on modifying its January 2025 circular that sought to revamp nomination facilities in the securities market.

While the earlier framework aimed to standardise and strengthen nomination processes, several provisions were flagged as operationally challenging, prompting SEBI to revisit the norms.

Operational control for nominees

The 2025 circular facilitated investors to empower nominees to operate an account in case the investor becomes incapacitated but retains contractual capacity.

However, industry participants raised concerns over the feasibility of implementing such a system, citing high costs, difficulties in maintaining audit trails, and the potential for misuse or legal disputes.

“It is proposed that the existing mechanism of Power of Attorney, may also be used in situations where investor is incapacitated, but still has the capacity to contract,” the consultation paper stated.

Fewer mandatory details for nominees

The regulator has also proposed easing the data requirements for nominees to make account opening less cumbersome.

Under the earlier framework, investors were required to furnish multiple details, including address, contact information and identity-related particulars of nominees.

“Feedback was received from the industry that the process of furnishing so many details of the nominee is onerous for investors and as a result many investors are dropping off, on-boarding,” SEBI noted.

It has now proposed that only the name of the nominee and the nature of relationship with the investor be made mandatory, while all other details would remain optional.

The percentage share of each nominee would also be optional, with a default provision for equal distribution of assets in case shares are not specified.

Simpler opt-out process

SEBI has sought to simplify the process for opting out of nomination.

The previous rules mandated OTP-based verification along with submission of a physical declaration or video recording, which industry players found onerous to implement and maintain.

The regulator has now proposed a system where nomination would be the default option at the time of opening new accounts, while investors who do not wish to nominate can opt out through a digital consent mechanism.

“Upon choosing opt-out, a pop-up message on benefits of nomination and declaration for opt-out out shall be displayed,” the paper said. “The investor shall be required to provide consent in this pop-up message to opt-out from nomination.”

For existing accounts without nomination or opt-out, intermediaries would continue to send periodic reminders through emails, SMS and platform notifications.

Cap on number of nominees reduced

The 2025 circular had increased the upper limit on the number of nominees from three to ten, but a review of account data showed that only a small proportion of investors had opted for even three nominees.

“Increasing the nominees to 10 may create a strain on the system leading to operational issues,” SEBI said.

Accordingly, the regulator has proposed to cap the number of nominees at four, bringing it in line with banking norms.

The cap on joint holders in an account will remain unchanged at three.

SEBI has invited public comments on the proposed changes until April 7, 2026, after which the final norms will be notified.