Market regulator Securities and Exchange Board of India (SEBI) has issued a circular saying investors, who are subscribing to mutual fund (MF) units from 1st August, will have the choice of providing nomination or opting out nomination. This will partly pave the way for standardisation of the nomination process in MFs.
Also, the regulator has issued a format for nomination form and opting out of nomination through a 'declaration form' in this regard, according to a circular.
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 told to get this done by 31 March 2023. MF folios without nomination or an opting-out declaration will be frozen and investors cannot sell their units in such folios. If your folio does not have a nominee nor you have opted out of nomination, it is better to approach the fund house and exercise your choice, to ensure that your folios do not get frozen after the deadline.
Under the new framework, the asset management company (AMC) will have to 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 will carry the wet signature of all the unit-holder(s) and, in case of online option, the forms will be using e-sign facility instead of wet signature(s) of all the unit-holder(s).
AMCs have been asked to ensure that adequate systems are in place for providing the e-sign facility and they need to take all necessary steps to maintain confidentiality and safety of client records. The move is aimed at bringing uniformity in practices across all constituents in securities market.
Jointly held MF folios and nomination are the best way to transmit an MF investment, in case of the death of an MF investor.
It may be recalled that last year, SEBI gave a similar choice for investors who were opening a new trading and demat account.
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