India’s market watchdog, the Securities and Exchange Board of India, on Tuesday issued a consultation paper proposing changes to nomination norms for demat accounts and mutual fund folios, seeking public comments.

The regulator said the proposals aim to modify its January 10, 2025, circular on nomination facilities in the securities market to improve the ease of investor onboarding and align processes with banking norms.

Under the existing framework introduced last year, single-holding investors were allowed to authorise one nominee (excluding minors) to operate their accounts in case of physical incapacitation, provided they remain mentally capable of contracting.

However, nominees are not permitted to update key account details such as bank information or contact details.

The current rules also mandate investors to provide at least one personal identifier of the nominee, such as PAN, driving licence number or the last four digits of Aadhaar, along with full contact details, relationship status, and date of birth in case of minors.

Investors can nominate up to 10 persons in a mutual fund folio, while Power of Attorney (PoA) holders are not allowed to nominate.

Moreover, the market regulator has flagged implementation challenges and risks associated with allowing nominees to operate accounts. The SEBI noted that the industry has cited high compliance costs, difficulty in maintaining audit trails, and potential risks of fraud, misuse and legal disputes.

To address this, it has proposed allowing the existing Power of Attorney mechanism to be used in cases where an investor is incapacitated but still capable of entering into a contract.

The regulator has also proposed simplifying the nomination process by reducing mandatory details. It suggested that only the name of the nominee and the nature of the relationship with the investor should be compulsory, while other details can be provided optionally.

In addition, the SEBI has proposed making nomination the default option at the time of opening new accounts.

For existing accounts without a nomination or opt-out, intermediaries will be required to periodically nudge investors through email and SMS to complete the process.

Further, while the 2025 circular increased the maximum number of nominees from three to 10, the SEBI said this could create operational challenges.

It has now proposed capping the number of nominees at four for both demat accounts and mutual fund folios, while retaining the limit of three joint holders.