SEBI wants to make nominations less of a headache

Summary: No nominee on your demat account? Under SEBI's new proposal, that won't be the easy default anymore. Here's what's changing and what it means for your family if something happens to you.

India's capital markets regulator is rethinking how investors name beneficiaries for their financial assets, and why so many don't bother at all.

The Securities and Exchange Board of India (SEBI) has released a consultation paper proposing a series of changes to nomination norms for demat accounts and mutual fund folios. The twin goals are straightforward: make it easier for investors to sign up and reduce the growing pile of unclaimed assets that accumulates when account holders die without having named anyone to receive their holdings.

The problem with the earlier framework

Last year's SEBI circular on nominations introduced a well-intentioned but operationally clunky process. Investors who did not wish to nominate anyone were required to authenticate their decision via a one-time password (OTP) and submit a declaration, either through a physical form with a wet signature at the intermediary's office or via a video recording.

Industry participants pushed back. Setting up infrastructure for video-based opt-outs, managing storage and ensuring secure sharing of those records proved difficult to implement at scale. These friction points risked disrupting the investor onboarding experience at precisely the moment intermediaries most need the process to run smoothly.

What SEBI is now proposing

SEBI's latest proposal takes a behaviourally informed approach: rather than requiring investors to actively nominate someone, nomination becomes the default at the time of account opening. Investors who want to skip it must consciously opt out, and in doing so, acknowledge the benefits of nomination through a pop-up declaration.

The regulator has also proposed simplifying what information is actually required to add a nominee. Under the new framework, only the nominee's name and their relationship to the investor would be mandatory; contact details and percentage share of assets would be optional. Where no share is specified, assets would be split equally among all nominees.

Additionally, for existing accounts without either a nomination or an opt-out on record, as well as new accounts where investors choose to opt out, intermediaries would be required to periodically remind investors through email, SMS, and in-platform pop-ups, encouraging them to complete the nomination process.

Capping nominees at four

SEBI has proposed reducing the maximum number of nominees from 10 to four, bringing the framework broadly in line with banking norms. The paper notes that very few investors currently opt for even three nominees; permitting up to 10, the regulator argues, placed unnecessary strain on systems and created operational complexity without meaningful benefit.

Removing the incapacitation clause

One of the more contentious provisions of the January 2025 circular was a proposal allowing nominees to operate an investor's account in the event of the investor's incapacitation, even while the investor was still alive. Industry participants flagged this as legally ambiguous and difficult to implement, noting that nominees traditionally hold no rights over assets during the investor's lifetime. The provision also raised concerns about fraud, misuse and potential legal disputes.

SEBI has proposed scrapping this clause and directing investors to use the existing Power of Attorney route instead, a mechanism better suited to managing accounts on behalf of a living account holder.

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