Heirs face uphill task claiming shares, MF units’ ownership without nomination
Source: Live Mint
We are in a phase of economic evolution where social security for oneself and family is achieved and shaped largely by individual financial planning and efforts rather than as a community mechanism, although a small part may be facilitated by government-backed mechanisms like the Employees’ Provident Fund, which does not cover the entire population.
It is necessary to take steps to ensure our loved ones receive our assets after our demise without delay and confusion. In last week’s edition of this two-part series, we delved into nomination in bank accounts and insurance policies. In this edition, we endeavour to understand the aspect of nomination in securities market investments.
Gone are the days when, even for effecting an address change, an investor had to file documents with every single company he held investments in. Now, with the facility of demat accounts, all an investor needs to do is file the documents with the depository participant. Once the address change is reflected in the demat account, it holds good for all investments held in that demat account.
The same goes for legal heirs claiming the shares of a person after his demise. Filing claims with the depository ensures that it applies to all investments held in the demat account.
If a nomination is mentioned, the process of transmission of securities to the nominee is simplified – the death certificate of the investor along with the KYC (Know Your Client) of the nominee is sufficient. In the securities market, KYC is centralised too. If KYC is done with one KRA (KYC Registration Agency), it holds good for all participants in the securities market.
However, if a nomination is not filed, requirements such as probate of will, succession certificate, legal heirship certificate, and no objection letters from other legal heirs would plunge the process into delays of several weeks, if not months, and involve running hither and thither between the authorities and courts to arrange for the documents. In times of emergency, this may result in woeful delays, mental stress and agony.
Role of nominees
Nominees can be someone in the immediate family of the investor, just as in the case of bank accounts and insurance policies. In case the nominee is someone other than the person entitled to receive the beneficial ownership of the securities under the will or succession laws, then the nominee shall hold the securities in trust till they are passed on to the person so entitled.
If the nominee is a minor, a guardian other than the investor must be specified. An investor can choose up to three nominees and specify the percentage share of the securities for each nominee. Once the transfer of securities or mutual fund units to the nominee is done, the obligation of the depository or the mutual fund gets discharged.
This means they need not be concerned with whether the nominee is the actual legal heir and need not interfere. This is what renders simplicity to the process but also entails careful selection of the nominee.
The Securities and Exchange Board of India (Sebi) had mandated choosing nomination in demat accounts held by individuals in a circular issued in July 2021, with the consequence of freezing the demat accounts if nominations are not made by the end of March 2022. A similar mandate was issued in respect of mutual fund holdings in June 2022, failing which mutual fund holdings would be frozen for debits by the end of March 2023.
Later, Sebi issued circulars extending the last dates for fulfilling the mandate. In June 2024, based on representations received from market participants, Sebi decided that demat accounts or mutual fund folios without nomination shall not be frozen. Accordingly, if the ‘choice of nomination’ is not made, the investors shall not be disqualified from being eligible to receive dividend, interest or redemption payments, as the case may be, on their holdings or to make service requests or lodge grievances.
Payments withheld only for want of the choice of nomination, as per the earlier circulars, shall be processed and released to the investors. However, for new demat accounts and mutual fund folios, nominations shall be insisted upon, as per the earlier circulars.
Although nomination is not mandatory now for existing demat accounts or mutual fund folios, it is a wise and urgent step towards securing the future of one’s family, ensuring that they are provided with the wherewithal to be self-sufficient no matter the circumstances.
Usha Ganapathy Subramanian, Practising Company Secretary, Chennai
Ranjith Krishnan, Sustainability Consultant, Thane
