Understanding Why You Should Add a Nominee to your Demat Account

On February 22, 2023, the Securities and Exchange Board of India (SEBI) issued a circular number SEBI/HO/MIRSD/MIRSD_RTAMB/P/CIR/2022/23, stating that all Demat account holders should set a nominee for their accounts. This new requirement is aimed at protecting the interests of investors and ensuring the smooth transfer of securities to the rightful heirs in case of an unfortunate eventuality. This will come into force with effect from March 31, 2023. The previous year’s date was set as March 31, 2022, but now it has been extended.

Why is it Necessary to have a Nominee for a Demat Account?

A nominee is a person the account holder appoints to receive the securities in case of the account holder’s demise. Having a nominee for a Demat account is essential as it helps easily transfer securities to the rightful heirs without any legal hassles. Having a nominee will ensure that the securities are transferred to him/her as per the account holder’s wish. If the account holder has not appointed a nominee, the securities may be frozen, and the legal heirs may have to go through a lengthy and cumbersome legal process to claim the securities.

SEBI’s Circular on Nomination for Demat Accounts

SEBI has asked all Demat account holders to set a nominee for their accounts, and in case they don’t want to set up a nominee, they need to declare it to SEBI. Failure to comply with this requirement may result in freezing the Demat and trading account.

The circular also mandates that the nomination form be filed with the Depository Participant (DP) with whom the account is held. The form should contain the nominee’s name, address, and relationship with the account holder. The account holder can appoint up to three nominees for their account, and they can specify the percentage of securities each nominee is entitled to receive.

How to Appoint a Nominee for a Demat Account?

Appointing a nominee for a Demat account is a simple process that can be done in two ways, either online or Manually. You need to fill up a form to set up a nominee for your Demat account online. Bigul provides you with the link https://dkyc.bonanzaonline.com/nominee/ by which you can fill this form hassle-free. For manually appointing a nominee, the account holder must fill out a nomination form provided by the Depository Participant (DP) with whom the account is held. The nomination form should contain the nominee’s name, address, and relationship with the account holder. The account holder must sign the nomination form in the presence of two witnesses unrelated to the account holder or the nominee. The nomination form should be submitted to the DP, who will verify and record the nominee’s details in the account.

Who Can be Appointed as a Nominee for a Demat Account?

The account holder can appoint any individual as a nominee for their Demat account, not necessarily to be a family member. However, it is noteworthy that the nominee must be a natural person, not a trust, society, or any other legal entity. The nominee should also be at least 18 years of age and a resident of India. It is important to note that A minor represented by its guardian can also be the nominee to a Demat account. Guardian details in the KYC need to be provided in such a case. The account holder can appoint up to three nominees for their Demat account, and they can specify the percentage of securities each nominee is entitled to receive.

Benefits of Appointing a Nominee for a Demat Account

Appointing a nominee for a Demat account has several benefits. As discussed, it ensures that in case of the account holder’s demise, the securities held in the account are transferred to the legal heirs smoothly and without any legal hassles. This helps to avoid any delay in the transfer of securities, which could cause financial hardship for the family. Additionally, appointing a nominee for a Demat account is essential to estate planning, which can help secure the family’s future.

What Happens in the Case of Multiple Nominees?

If the account holder has appointed more than one nominee for their Demat account, they can specify the percentage of securities each nominee is entitled to receive. The percentage of securities specified should add up to 100%. If the account holder does not specify the percentage of securities for each nominee, they will be divided equally.

What Happens if the Nominee Passes Away Before the Account Holder?

If the nominee passes away before the account holder, the account holder can appoint a new nominee by filling out a new nomination form. If the account holder does not appoint a new nominee, the securities will be transferred to the legal heirs of the account holder in the event of their demise.

Importance of Keeping Nomination Details Up-to-Date

It is important to keep the nomination details up-to-date and review them periodically to ensure they reflect the account holder’s current wishes. The nomination details can be changed by submitting a new nomination form and submitting it to the DP. Any changes to the nomination details should be communicated to the nominees to avoid any confusion in the future.

Conclusion

SEBI’s latest circular is a step in the right direction towards protecting the interests of investors and ensuring the smooth transfer of securities to the rightful heirs. All Demat account holders must comply with this requirement and appoint a nominee as soon as possible. If the account holder has not appointed a nominee, they should either do so or declare that they do not want a nominee to avoid any legal hassles in the future.