SEBI Revises Nomination Rules for Demat Accounts and Mutual Funds

What are the Key Highlights of the New SEBI Nomination Rules?

• Effective date: September 1, 2026 — all regulated entities (depository participants, AMCs, RTAs) must comply from this date.
• Default nomination: Single-holder demat accounts and MF folios opened on or after September 1, 2026 will mandatorily include nomination unless the investor submits an opt-out declaration.
• Joint accounts: Nomination remains optional for jointly held accounts and folios.
• Maximum nominees: Investors may nominate up to four persons, reduced from the ten permitted under the January 10, 2025 circular.
• Mandatory fields: Only the nominee’s name and relationship with the investor are compulsory; all other details including address, mobile, email, percentage share, and KYC are optional.
• Online submission: Nomination can be submitted online via Digital Signature Certificate, Aadhaar-based e-sign, or two-factor authentication with OTP — wet signature and witness requirements are eliminated for online mode.
• Unlimited changes: Investors can provide, change, or cancel nominations any number of times, with regulated entities required to issue an acknowledgement for every instance.
• Incapacitation provision withdrawn: The controversial provision allowing nominees to operate accounts on behalf of incapacitated (but not legally incompetent) investors has been entirely removed by SEBI.

Why Did SEBI Change the Nomination Rules Now?

The revision traces back to SEBI’s circular dated January 10, 2025 (Circular No. SEBI/HO/OIAE/OIAE-IAD-3/P/ON/2025/01650), which had comprehensively revamped nomination facilities for demat accounts and mutual fund folios with effect from March 1, 2025. That circular increased the maximum nominees from three to ten, mandated seven categories of nominee data (name, percentage share, relationship, address, mobile, email, and a personal identifier), introduced a video-based opt-out mechanism, and permitted nominees to act on behalf of incapacitated investors.

Within months, the industry reported severe operational friction. Data from 2025 revealed that over 75% of newly opened demat accounts opted out of providing a nominee, indicating the framework was adding unnecessary friction to investor onboarding rather than simplifying it.

SEBI acknowledged these challenges. Through its circular dated December 11, 2025, it deferred implementation of the contested provisions. The consultation paper issued on March 17, 2026 then proposed a recalibrated framework, which has now been formalised through the May 29, 2026 circular.

What Exactly Has Changed Under the Revised Nomination Framework?

The May 29, 2026 circular introduces four structural changes that directly affect how investors interact with nomination at the time of account opening and thereafter.

First, nomination is now the default for single-holder accounts. Under clause 4.1 of the circular, all single accounts and folios opened on or after September 1, 2026 will mandatorily include nomination.

Investors who do not wish to nominate must affirmatively select the opt-out option. Upon selecting this, the regulated entity will display a pop-up declaration (as per Annexure-B of the circular) explaining the consequences of opting out. The investor’s active consent to this pop-up constitutes a valid opt-out. For jointly held accounts and folios, nomination remains optional under clause 4.2.

Second, mandatory nominee data has been reduced to the bare minimum. Clause 7 of the circular specifies that only the nominee’s name and the nature of relationship with the investor are mandatory. If the nominee is a minor, date of birth is also compulsory.

All other information — including address, mobile number, email, percentage share, KYC details, and guardian information for minor nominees — is entirely optional. Where no percentage allocation is specified among multiple nominees, the circular mandates equal division, with any fractional remainder allocated to the first-named nominee.

Third, the maximum number of nominees has been set at four. Clause 5.1 permits investors to nominate up to four persons, aligning the securities market with banking norms.

The January 2025 circular had raised this to ten, but SEBI’s own data showed that fewer than 1% of investors with a nomination opted for even two nominees. Where multiple nominees inherit an account, they may either continue as joint holders of the original account or open separate accounts, subject to the existing cap of three joint holders per demat account or folio under clause 5.2.

Fourth, the incapacitation provision has been withdrawn entirely. The January 2025 circular had introduced a facility under clause 3.5 allowing a nominee to operate an investor’s account where the investor was physically or cognitively incapacitated but not legally incompetent.

This provision generated significant legal and operational concerns, including potential probate disputes and nominee misconduct risks. SEBI has now removed this facility altogether, leaving the existing Power of Attorney mechanism as the appropriate route for such situations.

How Do the Revised Nomination Rules Compare with the January 2025 Framework?

The May 29, 2026 circular represents a decisive retreat from several ambitious provisions of the January 10, 2025 circular. The table below captures the key differences across the most operationally significant parameters.

What Does This Mean for an Investor Opening a New Demat Account Today?

Consider a practical example. Suppose you open a single-holder demat account with a depository participant on September 15, 2026.

Under clause 4.1 of Circular No. SEBI/HO/OIAE/OIAE_IAD-3/P/CIR/2026/12676, the account opening form will present nomination as the default. You decide to nominate your spouse and two children — three nominees in total, which is within the four-nominee ceiling under clause 5.1.

For each nominee, you are required to provide only the name and relationship under clause 7. You enter your spouse as “Ramesh Kumar — Spouse,” your son as “Arjun Kumar — Son,” and your daughter as “Priya Kumar — Daughter.”

You do not need to provide their addresses, mobile numbers, email IDs, PAN, or Aadhar digits. Since you have not specified any percentage allocation, the circular mandates equal division — each nominee receives a one-third share, with any fractional remainder going to the first-named nominee (your spouse) as per the default apportionment rule.

You submit the nomination online using Aadhaar-based e-sign, which is one of the three prescribed authentication methods under clause 6.2. No wet signature, no witness, no video recording.

The depository participant is required to issue you an acknowledgement under clause 9.3. Six months later, if you wish to replace one nominee or change the allocation, you can do so any number of times — each change triggers a fresh acknowledgement.

If instead you decide you do not want to nominate anyone, you must actively select the opt-out option. The system will display the Annexure-B declaration pop-up, and you must consent to it.

The depository participant will then flag your account as opted-out and, under clause 10.2, will periodically nudge you via email and SMS to reconsider. Your account will not be frozen — SEBI had already done away with freezing of demat accounts and MF folios for non-submission of nomination through its circular dated June 10, 2024 (Circular No. SEBI/HO/MIRSD/POD-1/P/CIR/2024/81).

How Do You Submit or Update Nomination Under the New Rules?

The May 29, 2026 circular gives investors full flexibility to submit, change, or cancel nominations at any time — there is no limit on the number of times you can update your nomination details. Under clause 9.1 of Circular No. SEBI/HO/OIAE/OIAE_IAD-3/P/CIR/2026/12676, every instance of nomination or subsequent change must be acknowledged by the regulated entity, so always ensure you receive confirmation.

For online submission, clause 6.2 specifies three authentication methods accepted by regulated entities. You can use a Digital Signature Certificate, Aadhaar-based e-sign, or any other e-sign facility recognised under the Information Technology Act, 2000.

Alternatively, two-factor authentication is permitted, where one factor must be a One-Time Password sent to your registered mobile number and email address. If you are submitting online, no wet signature or witness is required — the digital authentication itself validates the form.

For offline submission, you must sign the nomination form (Annexure-A of the circular) with a wet signature. Witness signatures are no longer required for wet-signed forms.

However, if you affix a thumb impression instead of a wet signature, clause 6.2 mandates that two witnesses must attest it, and their names and addresses must be captured in the form. For jointly held accounts, the signatures of all joint holders are required regardless of the mode of operation.

The form itself is streamlined. Under clause 7, you only need to provide the nominee’s name and relationship with you. If the nominee is a minor, their date of birth is also mandatory.

Everything else — mobile number, email, address, percentage share, KYC details, and guardian information — is optional. If you nominate multiple persons and do not specify percentage shares, the assets will be divided equally among them, with any fractional remainder going to the first-named nominee.

What Happens If You Choose to Opt Out of Nomination?

Opting out is a deliberate, documented act under the revised framework — it is not a passive omission. For single-holder accounts opened on or after September 1, 2026, clause 8 of the circular requires you to actively choose the opt-out option.

When you do so online, the regulated entity must display the declaration message from Annexure-B, which explains the consequences of not having a nomination. You must provide explicit consent within that pop-up to proceed without nomination.

If you opt out offline, you must fill out the declaration form for opting out as per Annexure-B of the circular. This is a standalone declaration — not a checkbox on the account opening form — and it serves as your formal record of having made an informed choice. Regulated entities are required to retain this declaration.

Under clause 10.2, regulated entities must periodically encourage investors who have not provided nomination (including those who opted out) to update their accounts. This means you should expect regular nudges — emails, SMS, and login-time pop-up messages — reminding you of the benefits of having a nomination in place. These nudges are a compliance obligation on depository participants and mutual fund RTAs, not optional outreach.

Regulated entities — including depository participants, asset management companies, and registrar and transfer agents — face a defined set of operational obligations under the revised circular. These are not optional best practices; they are mandatory compliance requirements enforceable under Section 11(1) of the SEBI Act, 1992 read with Regulation 60A of the SEBI (Depositories and Participants) Regulations, 2018 and Regulation 29A of the SEBI (Mutual Funds) Regulations, 1996.

The supersession clause is particularly important for compliance teams. Clause 15 of Circular No. SEBI/HO/OIAE/OIAE_IAD-3/P/CIR/2026/12676 explicitly states that all earlier SEBI circulars on nomination — including the January 10, 2025 circular and its subsequent amendments — are superseded effective September 1, 2026.

This means legacy forms, SOPs, and system workflows built around the seven-field mandatory data requirement, the ten-nominee ceiling, and the video-based opt-out mechanism must be decommissioned and replaced.

What Should Investors Do Right Now Before the September Deadline?

If you hold existing demat accounts or mutual fund folios without a nomination on file, you are not required to take any immediate action — nomination remains optional for existing accounts under the revised framework. However, there are practical steps worth considering before September 1, 2026.

First, review your current nomination status across all demat accounts and MF folios. Log into your depository participant’s portal or your AMC’s investor portal and check whether a valid nomination is recorded.

If you opened accounts during 2025 and opted out due to the cumbersome seven-field requirement, you may now find it worthwhile to revisit that decision given the simplified two-field requirement as per Clause 7 of Circular No. SEBI/HO/OIAE/OIAE_IAD-3/P/CIR/2026/12676.

Second, if you have more than four nominees on any existing nomination form filed under the January 2025 framework, be aware that the maximum reverts to four as per Clause 5.1 of the revised circular. Your regulated entity may contact you to confirm which four nominees to retain, or the excess nominees may be automatically removed per the entity’s internal policy. Proactively updating your nomination avoids ambiguity.

Third, understand that the Power of Attorney mechanism remains the only route for authorising someone to operate your account during any period of incapacitation. The nominee-operating provision as per Clause 3.5 of the January 2025 circular has been permanently withdrawn. If this capability is important to you, consult your lawyer about executing a specific POA covering securities operations.

How Does the Revised Framework Align Nomination Across Banking and Securities?

One of SEBI’s stated objectives, as reflected in the March 17, 2026 consultation paper, was to align the securities market nomination framework with banking norms. The revised circular achieves this alignment on several fronts.

The maximum number of nominees in the banking system has been four, and the revised SEBI framework now matches this ceiling as per Clause 5.1. The equal-division default where no percentage is specified mirrors the Banking Companies (Nomination) Rules, 1985 approach.

The trustee nature of nomination — where the nominee receives assets as a trustee for the legal heirs, not as an absolute owner — is consistent across both banking and securities. SEBI’s September 19, 2025 circular (Circular No. SEBI/HO/MIRSD/MIRSD-PoD/P/CIR/2025/130) had already clarified this transmission-from-nominee-to-legal-heirs principle.

What Specific Steps Should Investors Take Regarding Nomination?

1. Review your existing demat and MF folios before September 1, 2026. Log in to your depository participant portal and AMC/RTA account to check your current nomination status. If you have no nomination on file, decide whether you want to add one or formally opt out under the new framework.
2. Identify your nominee(s) and gather basic details. As per Clause 7 of the revised norms, you only need the nominee’s name and relationship. If the nominee is a minor, keep the date of birth handy. Contact details, address, and percentage allocation are optional — provide them only if you wish to.
3. Use the online nomination facility wherever possible. Depository participants and AMCs are required to offer online nomination through Digital Signature Certificate, Aadhaar-based e-sign, or two-factor authentication with OTP. This eliminates the need for wet signatures and witnesses, making the process significantly faster.
4. If you genuinely do not wish to nominate, complete the opt-out declaration. As per Clause 4.1 of Circular No. SEBI/HO/OIAE/OIAE_IAD-3/P/CIR/2026/12676, single-holder accounts opened on or after September 1, 2026, will default to nomination. You must actively select the opt-out option and consent to the pop-up declaration in Annexure-B. Do not ignore this step — your account opening may be held up otherwise.
5. For jointly held accounts, nomination remains optional. If you hold a demat account or MF folio jointly with a spouse, family member, or business partner, you are not required to nominate. However, it is still advisable to do so to avoid transmission complications in the event of a joint holder’s demise.
6. Keep your nomination updated as life circumstances change. SEBI now permits unlimited changes and cancellations. Marriage, divorce, birth of a child, or the death of a nominee are all valid reasons to revisit your nomination. Each change must be acknowledged by the regulated entity as per Clause 9.3 of the circular.
7. Do not rely on the nominee to operate your account if you become incapacitated. The nominee-as-operator provision under the January 2025 circular has been withdrawn as per Clause 3.5. If you want someone to manage your investments during incapacity, execute a proper Power of Attorney through a registered legal process instead.

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