SEBI Proposes Simpler Nomination Rules for Demat in 2026

Introduction: SEBI's Move to Simplify Investor Processes

The Securities and Exchange Board of India (SEBI) has initiated a move to simplify the nomination framework for demat accounts and mutual fund folios. In a consultation paper released on March 17, 2026, the market regulator proposed a series of changes aimed at easing the investor onboarding process and curbing the growing issue of unclaimed assets in the securities market. The proposals focus on reducing mandatory information for nominees, making nomination a default option, and simplifying the opt-out mechanism.

Background: Revisiting the January 2025 Circular

These new proposals are not formulated in a vacuum. They are a direct response to industry feedback on a more comprehensive circular issued in January 2025. That earlier framework, while intended to strengthen nomination processes, was met with resistance from market participants. Intermediaries and industry bodies flagged concerns regarding high compliance costs, operational complexities, and potential for legal disputes. The feedback highlighted that some provisions were difficult to implement, creating friction for investors. Acknowledging these challenges, SEBI has revisited the norms to strike a better balance between investor protection and practical implementation.

Key Proposal: Fewer Mandatory Details for Nominees

One of the most significant proposed changes is the reduction of mandatory details required for a nominee. The January 2025 circular required investors to furnish extensive information, including the nominee's address, contact details, and identity proofs. Industry feedback indicated that this process was onerous and often led to potential investors abandoning the account opening process.

Under the new proposal, only two fields would be mandatory: the nominee's name and their relationship with the investor. All other details, such as address, mobile number, and percentage share, would become optional. This change is expected to significantly reduce the time and effort required to complete nomination formalities, making the process more investor-friendly.

Nomination to Become the Default Option

To ensure that more accounts have a designated nominee, SEBI has proposed making nomination the default choice for all new single-holder accounts. This means that unless an investor explicitly chooses otherwise, a nomination will be considered active. Investors who do not wish to appoint a nominee will be required to formally opt out by submitting a declaration. For joint accounts, however, nomination will continue to remain optional, providing flexibility to co-holders.

A Simpler Opt-Out Mechanism

Aligning with the goal of simplification, the process for opting out of nomination is also set to become easier. The previous rules mandated a cumbersome process involving OTP-based verification along with a physical declaration or a video recording. Market participants found this difficult to implement and maintain. The new proposal suggests replacing this with a straightforward digital consent mechanism. An investor choosing to opt out would be shown a pop-up message explaining the benefits of nomination, and their consent to opt out would be recorded digitally.

Nominee Cap Reduced to Four

In a notable rollback, SEBI has proposed to cap the maximum number of nominees for an account at four. The January 2025 circular had increased this limit from three to ten. However, an analysis of account data revealed that a very small percentage of investors opted for even three nominees. The regulator noted that allowing up to ten nominees could create an unnecessary strain on systems and lead to operational issues. The proposed cap of four aligns the securities market with prevailing banking norms.

Summary of Proposed Changes

No Operational Rights for Nominees

The consultation paper also proposes to scrap a provision from the earlier circular that would have allowed a nominee to operate an account if the investor became incapacitated. Industry participants had raised serious concerns about this, citing the high costs of building audit trails, the potential for misuse, and the risk of legal disputes. SEBI has proposed that investors should instead rely on the existing and well-established Power of Attorney (PoA) mechanism in such situations. The paper reiterates the legal standing of a nominee as a trustee who is responsible for transferring assets to the legal heirs after the investor's demise, not as an owner of the assets.

Addressing the Challenge of Unclaimed Assets

The underlying goal of strengthening nomination rules is to reduce the volume of unclaimed assets lying with financial institutions. To this end, the proposal mandates that intermediaries must continue to send periodic reminders to investors who have not registered a nominee. These reminders will be sent via SMS, emails, and platform notifications, encouraging investors to complete this crucial step.

Conclusion and Next Steps

SEBI's latest consultation paper reflects a responsive approach to regulation, taking into account the practical challenges faced by the industry. The proposed changes aim to create a more streamlined, efficient, and user-friendly nomination process that encourages wider adoption without imposing undue operational burdens. The regulator has invited public comments on these proposals until April 7, 2026. After reviewing the feedback from stakeholders, SEBI will notify the final regulations, which will shape the future of asset succession in India's capital markets.