Updated February 6th, 2024 at 08:09 IST
Nomination neglect: Sebi sounds alarm as 72.48% demat accounts lack details
Despite a surge in demat account registrations, 69.73% of account holders, totalling 9.51 crore, have deliberately abstained from nominations.
Sebi flags nomination gap: Sebi has raised concerns over the lack of nominations in more than two-thirds of demat accounts, with a 72.48 per cent of 13.6 crore single holding demat accounts missing beneficiary details, according to a consultation paper released on Friday. Despite a surge in demat account registrations, 69.73 per cent (9.51 crore) account holders have intentionally refrained from nominating, while 2.76 per cent are undecided on nominating or opting out. In contrast, mutual fund folios show better compliance, with only 6 per cent opting out and 8 per cent neglecting nominations amongst 8.90 crore MF folios.
Brokers bypass nominations
In joint holdings, 31 per cent of demat account holders and 7 per cent of mutual fund folios have opted out of nominations. However, a higher percentage of mutual fund folios in joint holdings (27.19 per cent) have neither nominated nor opted out, compared to just 6 per cent for demat accounts. The discrepancy is attributed to modern stock brokers bypassing the nomination process, with brokers reportedly opting out of nominations on behalf of demat account holders without their consent.
Initially, Sebi set a deadline of March 31, 2023, for account holders to nominate beneficiaries or opt out, warning of account deactivation for non-compliance. The deadline was extended to September 30 and then December 31, 2023. Some brokers updated details without consulting account holders to avoid deactivation as the deadline neared. Last month, Sebi extended the deadline for the third time to June 30, 2024.
Optional nominations ahead
SEBI has proposed an alteration to the nomination process for jointly-held mutual fund folios and demat accounts. In a consultation paper issued on February 2, SEBI suggests transitioning from mandatory to optional nominations for investors with jointly-held investments. The proposed change would grant joint account holders the flexibility to either nominate beneficiaries or choose to opt out, while the obligation for nomination would persist for single holders. The existing rule of survivorship, wherein the rights and interests transfer to surviving joint holders in the event of one account holder's demise, would continue to be in force.
Despite previous extensions for investors to complete nominations, SEBI is now contemplating the adoption of an optional nomination process for jointly-held accounts.
Published February 5th, 2024 at 09:47 IST