Change in nomination rule for Mutual Fund unit holders

Change in nomination rule for Mutual Fund unit holders

(SEBI issued a Circular on June 15, 2022)

Nomination is a facility that enables an individual unitholder (including sole proprietor of sole proprietary concern) to nominate a person, who can claim the Units held by the unitholder or the redemption proceeds thereof in the event of death the unitholder.

If the Units are held jointly by more than one person, all joint unit holders are required to together nominate a person in whom all the rights in the units would vest in the event of death of all the joint unit holders.

As per Regulation 29 A of SEBI Mutual Funds Regulations, 1996, mutual funds are required to provide an option to the individual unitholders to nominate in the manner specified in the Fourth Schedule.

Earlier, it was mandatory to appoint at least one nominee in the case of subscribing to a mutual fund unit. However, recently SEBI issued a Circular EBI/HO/IMD/IMD-II DOF3/P/CIR/2 dated June 15, 2022  (“Circular”) had modified the rule and now one can have a choice to either furnish nominations or opt out of a nomination by submitting a request to that effect.

After the insertion of the above circular issued by SEBI under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with the provision of Regulation 77 of SEBI (Mutual Funds) Regulations, 1996 of SEBI (Mutual Funds) Regulations, 1996 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market, now shall be read as;

  1. Investors subscribing to mutual fund units on or after August 01, 2022, shall have the choice of:
  2. Providing nomination in the format specified in fourth schedule of SEBI (Mutual Funds) Regulations, 1996 (or)
  3. Opting out of nomination through a signed Declaration form as provided in Annexure – A of the circular.
  • AMC shall provide an option to the unit holder(s) to submit either the nomination form or the declaration form for opting out of nomination in physical or online as per the choice of the unit holder(s). In case of physical option, the forms shall carry the wet signature of all the unit holder(s) and in case of online option, the forms shall be using e-Sign facility recognized under Information Technology Act, 2000, instead of wet signature(s) of all the unit holder(s).
  • All AMCs shall ensure that adequate systems are in place for providing the e-Sign facility and take all necessary steps to maintain confidentiality and safety of client records.
  • Further, all existing MF folios held in a single name or jointly need to have a nominee or an explicit opting-out declaration. The fund houses have been advised to set deadline as March 31, 2023. Mutual Fund folios without nomination or an opting-out declaration will be frozen and investors cannot sell their units in such folios.

The conclusion from the above circular: The said amendments are to protect the Interest of the Unit holder in a transparent manner, where one can have an option to nominate anyone or opt-out of anyone at any time by just following the least procedure issued by SEBI.

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