SEBI brings centralised reporting mechanism for deceased investors

The Securities and Exchange Board of India (SEBI), on Tuesday, announced a centralised mechanism to streamline the process of reporting the demise of investors, aiming to ease the burden on claimants and facilitate the swift transmission of financial assets.

With unclaimed money in Indian mutual funds alone surpassing Rs 24,000 crore (as per a paper by ARIA), and even higher figures when considering other financial assets, SEBI's centralised mechanism promises a more efficient and compassionate approach to handling the aftermath of investor loss.

A solution to cumbersome claim processes

Currently, the process of making claims for financial assets after an investor's demise involves separate, paper-intensive formalities with each financial institution. The ordeal becomes even more complex if claims need to be made from multiple fund houses. SEBI's new mechanism, scheduled to come into effect on January 1, 2024, seeks to alleviate this burden and streamline the transmission process for grieving families.

The centralised mechanism in action

Here's how the centralised mechanism, outlined by SEBI, will work:

• Immediate intimation: Upon receiving intimation of an investor's death, the intermediary will be required to obtain the death certificate along with the investor's PAN (Permanent Account Number). This information will then be validated online and reported to the KYC (Know Your Customer) registration agency, along with the uploaded documents.
  
• Transaction block: Simultaneously, the intermediary will block all withdrawal transactions linked to the folio or account. In cases of joint accounts, other account holders will retain their transaction rights.
  
• KYC status update: Upon receiving the intimation, the KYC registration agency will independently validate the information and change the investor's KYC status to 'Blocked Permanently,' only upon verification. This status update will be communicated to all intermediaries involved.
  
• Nominee notification: With the 'Blocked Permanently' status in place, all intermediaries must promptly block linked folios/accounts for any further transactions. Additionally, they must notify the nominee about the transmission process within five days.

SEBI's circular also outlines procedures for situations where intermediaries encounter challenges verifying documents online.

A step in the right direction

In conclusion, SEBI's centralised mechanism represents a significant step in the right direction to simplify the transmission process in mutual funds.

However, a key enhancement that could significantly benefit claimants would be the immediate notification to the KYC registration agency and all intermediaries as soon as the investor's demise is registered with the municipal office for obtaining a death certificate.

Also read: SEBI extends mutual fund nomination deadline