To enhance flexibility for investors, the Securities and Exchange Board of India (SEBI) amended its Master circular governing mutual funds to make the nomination process optional for jointly held mutual fund accounts. Effective immediately, the nomination for joint accounts in mutual funds has been made optional, which means investors can choose to nominate and or not nominate beneficiaries. They can also opt out of the nomination process altogether.
"Master Circular prescribes the requirement for nomination or opting out of nomination for all the existing individual unit holders holding Mutual Fund units either solely or jointly, by June 30, 2024, failing which the folios shall be frozen for debit. it has been decided that the requirement of nomination of the Master Circular for Mutual Funds shall be optional for jointly held Mutual Fund folios," Sebi release said.
Sebi had extended the deadline for mandatory nominations for mutual fund schemes to June 30 2024, and warned that folio will be frozen for debit if nominations are not received by then. But in subsequent discussions with stakeholders, it noted that in jointly held folios, the surviving holder in a jointly held folio takes precedence over nominee during transmission of units. Also, the nomination is put on hold if all the unit holders are not available at the time of nomination, which will cause huge delay in the process. Considering these constraints, Sebi decided to make nomination optional for joint folios.
On February 2, 2024, Sebi released a statement indicating that 14 per cent of single-holder mutual fund folios and 72.48 per cent of demat accounts, or 9.8 crore accounts, lack nomination details.
Note that Sebi's deadline for mandatory nominations in mutual fund schemes of single holding, before June 30, 2024 still holds. Investors must compulsorily declare nominee for their mutual fund accounts and demat accounts by June 30, 2024. Either they must nominate a beneficiary or opt out of nomination altogether by submitting a declaration form. The deadline has already been extended twice since September 2023." Failure to nominate beneficiaries by this deadline would result in the freezing of the folio for debit transactions or transactions such as redemptions or systematic withdrawal plan (SWP) or switch or systematic transfer plan (STP). The same rule applies to demat accounts and also to new and existing account holders.
