SEBI proposes modified nomination norms for Demat and Mutual Fund accounts

SEBI Unveils Streamlined Nomination Framework

"The Securities and Exchange Board of India (SEBI) is set to revolutionize how investors handle nominations for their demat accounts and mutual fund folios with a fresh set of proposals aimed at making the process smoother and more investor-friendly," the regulator stated in its consultation paper released on March 17, 2026. These changes come after feedback on earlier guidelines showed that complex requirements were causing many people to abandon account openings midway. |quote|

"By making nomination the default for all new single-holder accounts, SEBI wants to ensure that assets don't end up unclaimed after an investor's passing," experts familiar with the matter explained. This means when someone opens a fresh demat or mutual fund account alone, a nominee will automatically be set up unless they actively choose to opt out through a simple digital declaration. For joint accounts, things stay flexible with nomination remaining optional, respecting the dynamics between co-holders.

"This shift addresses a key pain point in the market, where previously investors had to opt in manually, often leading to oversights," one industry observer noted. The public has until April 7, 2026, to submit comments, after which SEBI will finalize and notify the rules. This timeline gives ample opportunity for investors, asset managers, and depositories to weigh in on the practicality of these reforms.

Key Simplifications in Nominee Requirements

"Gone are the days of filling out exhaustive forms for nominees; SEBI now proposes that only the name and relationship to the investor be mandatory," highlighting a major relief for users. Details like address, phone number, email, or even the percentage share each nominee gets can now be optional, cutting down the "onerous" paperwork that deterred many during onboarding. If shares aren't specified, assets will simply be split equally among nominees, keeping things straightforward.

"This aligns closely with banking practices, where similar simplicity has long been the norm," sources close to the development pointed out. Additionally, SEBI is capping the number of nominees at four per account, dialing back from a previous idea of up to ten that raised operational red flags. Data showed most investors rarely picked more than three anyway, so four strikes a balance between choice and system efficiency without straining back-end processes. Joint holder limits stay at three, unchanged.

"For incapacitated investors, the new rules scrap any automatic nominee control over the account, favoring power of attorney instead as a safer alternative," adding a layer of protection. Periodic reminders via SMS and email will nudge those without nominations to set one up, promoting better estate planning habits across the board.

Implications for Investors and Market Operations

"These proposals could significantly boost participation in the securities market by removing friction at the entry point," analysts suggest. New investors, especially first-timers wary of paperwork, stand to benefit most from the quicker setup. Mutual fund houses and depositories welcome the operational ease, as fewer drop-offs mean healthier account growth and reduced unclaimed asset piles that burden the system.

"While the changes target single accounts primarily, joint holders retain their opt-in freedom, ensuring no one-size-fits-all rigidity," which maintains fairness. The rollback on nominee numbers from ten to four, based on real usage data, shows SEBI's responsiveness to practical realities rather than theoretical maximums. This could set a precedent for other financial services to harmonize rules across sectors.

"Investors should watch for the final notification post-April 7, as these tweaks promise a more accessible investment landscape," advisors recommend. In essence, SEBI's move underscores a commitment to user-centric regulation, blending security with simplicity to foster wider financial inclusion. Existing account holders might get prompts to update nominations, smoothing the transition.

These proposed changes by SEBI mark a thoughtful evolution in nomination norms, prioritizing ease of use, default protections, minimal mandatory details, and a practical nominee cap of four—all designed to safeguard investor assets while streamlining market operations.