Out of 136.4 million single holding demat accounts, around 99 million or 72.5% do not have any nomination details, a consultation paper by Securities and Exchange Board of India (Sebi) shows. In case of joint holding demat accounts, 37.2% do not have any nominations.
The negligence or lack of awareness about the importance of nomination among investors has forced the markets regulator to extend the deadline for submitting the nomination details for their demat account and mutual fund units in the last one year. The latest deadline is June 30, 2024. It has warned that accounts or folios without nomination details after this date will be frozen.
However, mutual fund investors have shown better adherence. In case of single holding mutual fund folios, only 14.2% of them do not have nomination. And for joint holding mutual fund folios, 34.2% are without nominations.
Importance of nomination
Nomination enables an individual investor to nominate a person, who can claim the securities held by him in demat accounts or redeem the mutual fund units after his demise. Initially, the Sebi had set a deadline of March 31, 2023 for account holders to nominate beneficiaries or formally opt out. The regulator extended the deadline to September 30, 2023, then to December 31, 2023. As many investors have failed to comply with the directive, it extended the deadline to June 30, 2024.
Without a valid nomination, the process of accessing demat account holdings becomes time-consuming for legal heirs, says Vishnu Chundi, founder and CEO of AasaanWill, an online will writing platform, “If there is no nomination in place, financial institutions would require proof of title or a succession certificate issued by a competent court,” said Chundi.
In the event of a family member’s passing, one of the critical tasks is to manage their financial affairs and claim money from the various financial institutions. If a nomination is in place, the nominee simply needs to provide identification documents and the deceased person’s death certificate to claim the funds.
However, it is crucial to note that a nominee is essentially a custodian of securities or assets until the legal heir inherits them.
A legal heir is a person who is entitled to succeed to the property of a deceased person under a will or as per the succession laws. Creating a will is recommended to ensure the smooth inheritance of assets and properties.
“Harmonising the nomination with the contents of the will is advisable to prevent conflicts between the nomination and subsequent bequest to a legal heir,” says Chundi.