New Delhi: India’s capital markets regulator, Securities and Exchange Board of India (SEBI), has released a consultation paper proposing changes to nomination rules for demat accounts and mutual fund folios, seeking public feedback on measures aimed at simplifying investor processes.

The regulator said the proposed reforms are intended to ease investor onboarding in the securities market and align nomination procedures with banking sector norms. The proposals seek to modify SEBI’s January 10, 2025, circular on nomination facilities in demat and mutual fund accounts.

Existing nomination rules in demat and mutual fund accounts

Under the current framework, single-holding investors can authorise one nominee to operate their account in cases of physical incapacitation, provided the investor remains mentally capable of entering into a contract.

However, nominees are currently restricted from updating critical account details, including bank information and contact details.

Investors must also provide several mandatory identification details of the nominee, such as PAN, driving licence number or the last four digits of Aadhaar, along with contact information and relationship details. In the case of minors, the nominee’s date of birth must also be provided.

At present, investors can nominate up to 10 persons in a mutual fund folio, while Power of Attorney (PoA) holders are not allowed to nominate on behalf of investors.

Also Read| Trade gap and inflation: Is the West Asia crisis set to worsen India’s economic pressures?

Industry concerns over compliance and fraud risks

SEBI noted that market participants have raised concerns about the practical challenges of allowing nominees to operate accounts.

According to the regulator, the industry has cited higher compliance costs, difficulties in maintaining audit trails, and risks of fraud, misuse or legal disputes under the current system.

To address these concerns, SEBI has proposed allowing the existing Power of Attorney mechanism to be used in situations where an investor is physically incapacitated but still legally capable of entering into a contract.

SEBI proposes a simplified nomination process

As part of the proposed reforms, SEBI has suggested simplifying the nomination process for demat and mutual fund accounts by reducing mandatory documentation.

Under the proposal, only the name of the nominee and the relationship with the investor would be mandatory. Other details, such as identification numbers and contact information, could be provided optionally.

The regulator has also proposed making nomination the default option when opening new demat or mutual fund accounts, encouraging investors to designate nominees at the start.

Also Read| India’s household savings jump to 21.7 per cent of GDP in 2024-25: Key drivers revealed

The limit on the number of nominees may be revised

For existing accounts without a nomination or opt-out, intermediaries would be required to periodically remind investors through email and SMS to complete the nomination process.

Although the 2025 circular increased the maximum number of nominees from three to 10, SEBI said the higher limit has created operational challenges for intermediaries.

The regulator has now proposed capping the number of nominees at four for both demat accounts and mutual fund folios, while continuing to allow up to three joint account holders.

SEBI has invited public comments on the proposed changes, which are expected to simplify investor procedures while improving transparency, compliance and investor protection in India’s securities market.

IANS