The Securities and Exchange Board of India (SEBI) has recently issued a consultation paper on revamping the nominations framework in the securities market. The aim of this proposal is to reduce the amount of unclaimed assets in the securities market and to smoothen the process for claiming the assets by the surviving successors of the deceased investors.
According to SEBI, one of the primary factors contributing to the increase in unclaimed assets is the incomplete or unavailability of nominations for financial assets in the securities market. This makes the transmission process of the deceased an ordeal for the family or successors of the deceased. As per the latest data, there are about Rs 1,500 crore worth of unclaimed dividends lying with listed companies, and about Rs 3,800 crore worth of unclaimed funds lying with mutual funds.
To address this issue, SEBI has proposed revisions to nomination facilities for securities such as shares, bonds, units of REITs (Real Estate Investment Trusts), InvITs (Infrastructure Investment Trusts), AIFs (Alternative Investment Funds) and other securities held in dematerialised form and for units of mutual fund schemes that are expressed in a statement of account. These revisions will provide convenience to investors and uniformity in the procedures to institutions.
Some of the key features of the proposed nomination framework are:
- Nominations should be made, changed or cancelled in a safe, secure and verifiable manner by using digital signature or Aadhaar-based eSign or physical signatures of the investors or through dual authentication. If nomination is done by affixing a thumb impression, it should be in presence of two independent witnesses.
- Nomination facilities should permit multiple nominees and be increased from current limit of only three to two-digit or three-digit (i.e 99 or 999), which are large and sufficiently high to address ordinary requirements of individual investors.
- Nomination facilities can be made, changed or cancelled at any time without any restrictions as to the number of times such facilities is utilised.
- In case of joint holdings and rule of survivorship being applicable, no documentation related to KYC or undertakings should be required from the surviving joint holders.
- In absence of nominations, the legal heirs should be required to produce due evidence and follow the procedures prescribed (under applicable law) for the purpose of effecting transmission in their favour.
SEBI has also suggested that unclaimed funds in listed entities, REITs, and InvITs should be transferred to the Investor Protection and Education Fund (IPEF) for easy processing and refunds. SEBI has approved amendments to the IPEF, REIT, and InvIT Regulations to establish a uniform process for investors to claim unclaimed amounts from IPEF.
SEBI has sought comments from the public on its proposal till March 8, 2024. The regulator hopes that the revamped nomination framework will help reduce unclaimed assets in the securities market and facilitate smooth transmission process for successors of deceased investors.