The Securities and Exchange Board of India (Sebi) has taken a significant step toward enhancing investor protection by extending the deadline for mutual fund account holders to nominate a beneficiary or opt out of the nomination process. The new deadline for compliance is January 1, 2024, offering mutual fund investors additional time to secure their assets and ensure they can be passed on to their legal heirs in unforeseen circumstances.
Sebi issued a circular stating that this extension was based on representations received from market participants. It highlighted that the provision regarding the freezing of folios, as a consequence of non-compliance with nomination requirements, would now come into effect from January 1, 2024, instead of the initially stipulated date of September 30, 2023. This decision is significant as it grants investors a more reasonable timeframe to adhere to the nomination process without the immediate risk of their folios being frozen.
The nomination process in mutual funds is crucial for ensuring the smooth transition of assets to the intended beneficiaries in case of the account holder’s demise. Market experts have observed that many mutual fund folios were opened in the past without designating a beneficiary, resulting in uncertainty about the transmission of assets in such unfortunate events.
Sebi has not only extended the deadline but has also taken proactive measures to encourage compliance among investors. It has directed asset management companies (AMCs) and registrar and transfer agents (RTAs) to play an active role in motivating unit holders to fulfill the nomination requirement or opt out of the nomination process. These entities are required to send regular communication to unit holders who are not in compliance with this requirement, using email and SMS reminders on a fortnightly basis. This communication is intended to raise awareness among investors and emphasize the importance of completing the nomination process.
The earlier deadline for existing mutual fund holders to provide a choice of nomination was September 30. Sebi had initially mandated the submission of nomination details or a declaration to opt out of nomination on or after August 1, 2022. Since then, the deadline has been extended multiple times to provide investors with additional time to comply.
Sebi’s decision to extend the deadline and actively promote compliance reflects its commitment to investor protection. By granting investors more time to nominate beneficiaries or opt out of the nomination process, Sebi aims to ensure that individuals have the opportunity to safeguard their investments and assets for the future. This move aligns with Sebi’s broader mission of creating a secure and transparent investment environment for all market participants.
