SEBI Confirms: No Freeze on Accounts Lacking Nominees

Introduction

On June 10th, the Securities and Exchange Board of India (SEBI) clarified that it will not freeze existing mutual fund folios and demat accounts for investors who have not added a nominee. According to SEBI’s circular, new investors from June 30th onwards must have a nomination for mutual fund folios and demat accounts. SEBI has instructed Asset Management Companies (AMCs) to promote nominations for existing mutual fund folio holders.

Key Points from SEBI’s Circular

No Freezing of Accounts Without a Nominee: If you already have a demat account or mutual fund before June 30, 2024, you don’t have to worry about your account being frozen if you haven’t added a nominee. You can still continue using your account just as before.
Continued Benefits for Existing Accounts: Even if you don’t have a nominee, you can still enjoy all the benefits of your account. This includes receiving dividends, interest payouts, and being able to redeem your investments.
Why Having a Nominee is Important: SEBI emphasizes the benefits of having a nominee, explaining that it makes it easier for your investments to be transferred to someone else in case something happens to you.

Now, that we know, what the circular contains. Let’s talk about it in a detail.

No freezing of mutual funds and demat account of existing account holders incase of no nominee.

The circular SEBI has provided clarification that the nomination is not mandatory for the existing demat account holders and mutual funds folios.

Existing account holders, are defined as the those have an existing account or mutual fund folios prior to June 30th. But any account holder or mutual fund folio post this date is mandated to have a nomination file.

Continuation of mutual fund and demat account services and benefits.

Even without a nomination file the existing demat account holders and mutual fund folios can still continue to enjoy still enjoy dividends, interest payouts, redemption proceeds, and access to registrar services. The continuation of these benefits and services will not be taken away on the basis of no nomination.

Importance of nomination in your profile.

In the circular SEBI highlights why nomination should be present in demat account holders and mutual fund folios. And, why it should be encouraged?

Having a nominee helps in easing the transfer process in case of death of demat account holder and mutual fund folio.

Understanding Mutual Fund Nomination

A mutual fund nomination is like assigning a person (or people) to inherit your mutual fund units if you pass away. You can name up to three nominees for each mutual fund. If you choose more than one nominee, you need to decide how to divide your investments among them. For example, you might decide that one nominee gets 60% and another gets 40%. You can also change your nominee anytime by filling out a form with your mutual fund company.

Why SEBI Encourages Nomination

SEBI encourages adding a nominee for several reasons:

Smooth Transition: It makes it easier to transfer ownership of your investments if you pass away.
Reduces Complexity: Without a nominee, your family might have to deal with complicated legal procedures to claim your investments.
Provides Peace of Mind: Knowing that your investments will be transferred smoothly to your loved ones can give you peace of mind.

Conclusion

SEBI’s new rules make it clear that you don’t have to worry about freezing your existing mutual fund or demat accounts if you don’t have a nominee. However, having a nominee is still a good idea because it makes it easier for your family to handle your investments if something happens to you. Whether you’re just starting to invest or have been doing it for years, consider adding a nominee to your accounts for smoother financial management.

Note: Mutual fund investments are subject to market risks. Read all scheme-related documents carefully before investing. The past performance of the schemes is neither an indicator nor a guarantee of future performance.

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