The Securities and Exchange Board of India (SEBI) has introduced a simplified nomination framework for demat accounts and mutual fund folios, effective September 1, 2026. In a circular issued on Friday, May 29, 2026, SEBI revised several operational norms after receiving feedback and implementation concerns from market participants. Under the revised framework, nomination becomes mandatory for all new single-holder demat accounts and mutual fund folios opened after September 1, with investors who do not wish to nominate anyone explicitly required to submit an opt-out declaration. The framework is designed to ensure investments seamlessly reach family members in case of an investor's death, addressing the growing issue of unclaimed shares and investments across the country. As per ET Now, the move comes after SEBI received representations from market participants citing operational challenges in implementing earlier nomination rules issued in January 2025. The circular will come into effect from September 1, 2026, and will apply to both new and existing accounts and folios, aiming to improve investor onboarding, simplify succession processes and reduce the build-up of unclaimed financial assets in the securities market.
SEBI has significantly streamlined the nomination process through digital channels. Investors can now appoint up to three nominees and complete the entire process online using Digital Signature Certificate (DSC), Aadhaar e-sign, any recognised e-sign facility, or two-factor authentication (2FA) with OTP verification on registered mobile number and email address. For physical forms, witness signatures are no longer required unless the investor uses a thumb impression. In a significant simplification, SEBI has removed the requirement for a witness signature when investors submit nomination forms with a regular signature, with a witness now required only when an investor uses a thumb impression instead of a signature. The regulator has reduced information burden by making nominee's name and relationship with the investor mandatory, while details such as mobile number, email address, share allocation among nominees, and other identification documents have been made optional. SEBI has instructed regulated entities to upgrade their systems to implement these changes accordingly and advised depositories to take steps to make necessary amendments to the relevant bye-laws, rules and regulations.
A critical misunderstanding exists among investors regarding the legal status of nominees. A nominee is a person you officially name to receive your assets after your death, but they do not own those assets. They only hold them temporarily, like a caretaker, until the rightful legal heirs come forward and claim ownership. The Supreme Court settled this distinction conclusively in December 2023 in the case of Shakti Yezdani versus Jayanand Jayant Salgaonkar, ruling that nomination does not equal ownership. A nominee holds assets in the capacity of a trustee until succession is legally decided. There are two exceptions: the Employees' Provident Fund (EPF) and certain life insurance policies where the nominee is also designated as a beneficial nominee, in which case the nominee does get ownership. This distinction is crucial because a legal heir is the person who actually inherits your estate, determined either by your will or succession laws, with most legal heirs being your spouse, children, parents, or siblings. A practical example illustrates this: if you nominate your wife in your demat account but your will states assets go to children, your wife will receive assets first as nominee but must legally hand them over to the children.
Under the revised framework, nomination remains mandatory for single-holder accounts unless the investor explicitly chooses to opt out, while nomination remains optional for jointly held accounts and folios. In cases involving multiple nominees, each nominee may either continue holding investments jointly in the same folio or choose to open separate accounts for their respective shares after the investor's demise. Where multiple nominees are appointed but percentage allocation is not specified, the assets will be divided equally among the nominees, with any residual odd lot transferred to the first nominee listed in the form. SEBI has clarified that investors can add, modify, or cancel nomination details any number of times, with regulated entities required to provide acknowledgement every time a nomination is added or changed. The regulator has also warned that prolonged inactivity in accounts without claims may eventually lead to investments being treated as unclaimed assets and transferred to the Investor Education and Protection Fund Authority (IEPF), as per applicable rules. In joint demat accounts and MF portfolios, nomination will continue to be optional, with all operators of jointly-held accounts or folios required to give consent for adding or changing nominees regardless of operating mode.
SEBI has directed depositories, depository participants, mutual fund registrars and asset management companies to implement regular reminders for investors without nominees. These reminders will be delivered biannually through SMS, emails, and app pop-ups to ensure compliance with the new framework. Online platforms will also have to display pop-up messages highlighting the benefits of nomination whenever such investors log in to their accounts. The regulator's initiative aims to reduce the lengthy legal and documentation hurdles families face while claiming investments after an account holder's death. Notably, these reminders will not be shown to investors who have already completed nomination formalities, ensuring targeted outreach to those who need the information most. Additionally, SEBI wants greater transparency in account statements, with account and holding statements now required to either display the names of nominees or indicate whether a nomination exists, depending on the investor's preference. This circular supersedes all earlier circulars issued by SEBI with respect to nomination for demat accounts and mutual fund folios and such supersession shall be effective from the date of this circular.
