Nomination in a demat account or mutual fund folio is primarily an investor-service and transmission mechanism. It tells the depository participant, asset management company or registrar who should receive or claim the investment after the investor's death. It should not be confused with a will or treated as a complete substitute for succession planning.
SEBI's modified nomination norms issued on 29 May 2026 set out the current framework for demat accounts and mutual fund folios. SEBI also explains the succession position in its investor-service FAQ, including the important distinction between a nominee and the ultimate legal heir.
What does a nominee actually do?
A nominee provides a recognised person through whom securities or mutual fund units can be transmitted after the investor's death. Operationally, this can simplify the claim process because the intermediary has nomination instructions already recorded against the account or folio.
But nomination and inheritance answer different questions. SEBI's investor FAQ states that, under the succession-law position described there, the nominee receives the assets as a trustee and on behalf of the legal heir or heirs rather than automatically becoming the absolute beneficial owner merely because a nomination exists. This is why an investor's nomination choices should be coordinated with the will and broader estate plan.
Is nomination compulsory?
Under SEBI's May 2026 modified norms, a single demat account or mutual fund folio opened under the applicable framework requires the investor either to provide a nomination or to submit the prescribed opt-out declaration. For jointly held demat accounts and mutual fund folios, nomination is optional.
SEBI had already eased the treatment of existing investors through its 10 June 2024 circular, which did away with freezing of existing demat accounts and mutual fund folios merely for non-submission of the choice of nomination. Investors should therefore avoid relying on older messages suggesting that an existing holding will automatically be frozen solely because nomination has not been provided.
How many nominees can be appointed?
The May 2026 circular permits up to three nominees for demat accounts and mutual fund folios. If more than one nominee is appointed, the investor may specify the percentage share of each nominee. Where percentage shares are not specified, the circular provides for equal apportionment among the nominees, with any odd lot after division going to the first nominee mentioned in the form.
This makes percentage allocation a useful planning tool rather than a field to complete casually. The percentages recorded with the intermediary should be checked against the investor's intended estate distribution so that the operational transmission instruction does not create avoidable confusion for the family.
What information is mandatory?
SEBI's modified norms make the nominee's name and relationship with the investor mandatory. Date of birth is also mandatory where the nominee is a minor. Other information, including contact details, percentage share, KYC or identifier details and guardian details for a minor nominee, is treated as optional under the circular.
Although some information is optional from the regulatory-form perspective, providing accurate contact and identification details can still be practically useful. Investors should keep those details current and should not assume that an old mobile number, address or family relationship recorded years earlier will remain appropriate indefinitely.
Can a minor be a nominee?
Yes. The May 2026 framework specifically contemplates a minor nominee and requires the minor nominee's date of birth. Guardian information can also be captured. An investor choosing a minor nominee should pay particular attention to the practical claim process if the investor dies while the nominee is still a minor.
Can nomination be changed or cancelled?
Yes. SEBI's current framework allows investors to provide, change or cancel nominations multiple times. This is important because nomination should be treated as a living record. Marriage, divorce, death of a nominee, birth of a child or a major change in the investor's estate plan can all justify a review.
For physical securities, the forms and workflow differ from demat and mutual fund folios. SEBI's investor-service FAQ discusses Form SH-13 for nomination and Form SH-14 for modification, while opt-out and cancellation can involve the prescribed ISR declaration. Investors should use the process applicable to the form in which the security is actually held.
Nominee versus legal heir: a practical example
Assume an investor has a demat account and names one sibling as nominee. The investor later executes a valid will under which the securities are intended for two children, but never updates the nomination. On the investor's death, the nomination can help the intermediary identify the person through whom transmission is processed. It does not, by itself, answer every question of beneficial succession between the nominee and the legal heirs.
The practical lesson is not that nomination is unimportant. It is that nomination solves an operational transmission problem, while a will and succession law address the wider estate-distribution question. Good planning aligns both.
What should investors review across their portfolio?
- List every demat account and mutual fund folio: nomination is recorded at the relevant account or folio level, so do not assume one instruction covers the entire investment portfolio.
- Check single and joint holdings separately: the nomination framework differs for single and jointly held accounts or folios.
- Review nominee names and relationships: confirm that the current nomination still reflects the investor's intention.
- Check allocation among multiple nominees: if percentage shares are specified, make sure they match the intended distribution.
- Coordinate with the will: avoid creating an unexplained mismatch between nomination records and the estate plan.
- Keep evidence: retain acknowledgement of nomination, modification, cancellation or opt-out submitted to the DP, AMC or RTA.
- Review after major life events: nomination should be revisited when family circumstances or succession intentions materially change.
Common mistakes to avoid
- Treating the nominee as automatically replacing all legal heirs: nomination facilitates transmission but does not by itself settle every succession entitlement.
- Assuming nomination is identical for all investment formats: physical securities, demat holdings and mutual fund folios can have different operational forms and processes.
- Ignoring joint-holding rules: joint accounts and folios should be reviewed separately under the applicable SEBI framework.
- Leaving an outdated nominee indefinitely: a valid old nomination may no longer reflect the investor's current family or estate plan.
- Relying on obsolete freezing warnings: SEBI's 2024 circular removed freezing of existing demat accounts and mutual fund folios solely for non-submission of choice of nomination.
Practical takeaway
Nomination is best viewed as a transmission tool, not a complete estate plan. Under SEBI's current framework, investors can nominate up to three persons, single holdings use nomination or the prescribed opt-out route, and jointly held demat accounts or mutual fund folios have optional nomination. Keep nomination records current, align them with the will and succession plan, and preserve acknowledgements so that the family has a cleaner operational path if transmission is ever required.
