SEBI Simplifies Share and Mutual Fund Inheritance Rules for Family

Have you worked hard over the years to build your share or mutual fund portfolio, but worried about what will happen to the investments after you? Well, worry no more! SEBI has issued simplified inheritance guidelines that make it easier for families to pass on share/MF assets to legal heirs.

Your hard-earned assets are meant to be enjoyed not just by you but also bequeathed to future generations. This belief has driven Indian families for time immemorial when it comes to succession planning and inheritance.

However, the practical difficulties in ensuring one’s share investments and mutual fund holdings are seamlessly passed on to rightful heirs have often played spoilsport. Opaque procedures, burdensome paperwork and lack of standardization in rules have hindered smooth transfer of portfolio wealth from ancestors to descendants.

In a major respite that stands to benefit crores of retail investors, SEBI recently announced simplified, progressive guidelines to ease the nomination and transmission protocols for securities and mutual fund units. Now, investors can relax knowing their painstakingly built share/MF investment legacy can be continued hassle-free by family.

This blog post explains SEBI’s investor-friendly steps to standardize and digitize processes around assigning portfolio assets to nominees as well as claiming inheritance. We simplify key terminologies like nomination, transmission, eKYC authentication that underpin the new transparent protocols. Common real-life inheritance scenarios are elucidated so readers understand implications on their specific situations. Queries around timelines, taxes, NRI investors etc. are addressed through FAQs.

Our aim is to equip readers with clarity on rule changes so India’s investing community can seamlessly pass the earnings baton to the next generation. Be it shares or mutual funds, may your hard work continue reaping dividends for family beyond your time!

This guide breaks down the new rules on nominations, transmission, documentation and procedures involved in seamless inheritance of your portfolio within the family. Read on to ensure your hard-earned wealth stays protected across generations!

Easing the Journey of Passing on Your Investment Legacy

Have you diligently built up your portfolio of shares and mutual funds over the decades to securely pass on this hard-earned wealth to your loved ones? Inheritance rules so far have proved tedious with opaque procedures and burdensome paperwork often acting as roadblocks for families to access rightful dues.

In a major positive move to benefit retail investors, SEBI has issued simplified nomination and transmission guidelines that facilitate smooth transfer of listed securities and MF units to legal heirs. Read on to understand the key changes that allow you to seamlessly bequeath your portfolio legacy to the next generation!

Demystifying Key Terminologies on Inheritance

First, let’s get clear on the exact meanings of certain common terms that underpin legacy transfer of investments:

Nomination – The act of designating one or more persons as beneficiaries entitled to receive stocks, mutual funds etc. held in your demat account upon death of the original asset holder.

Transmission – The actual process of transferring securities from the deceased person’s portfolio to the account(s) of nominee(s) as per succession certificate/Will or as per applicable law.

Now let us explore the enhanced processes SEBI has established around nomination and transmission to ease intergenerational transfer of investments for families.

1. Flexible Nomination Facility Introduced

Earlier, you could nominate only one person to eventually own the shares/mutual funds held – leading to issues later amongst heirs. Additional constraints existed on assignments to minors etc.

In its circular, SEBI has significantly enhanced nomination flexibility/simplicity:

• Option to nominate multiple beneficiaries along with allocation of percentage entitlements clearly defined. For instance 40% to spouses, 30% each to 2 children.
• Nomination for minors allowed through guardians under simplified docs.
• One-time nomination can be provided which applies automatically across all securities/MFs held. Avoid the hassle of nominating every time you purchase new assets.
• New demat accounts require nomination details to be captured upfront by broker/DPs. Can update anytime.

So the new rules allow investors better nominate specific family members as inheritors through flexible allocation percentages on a one-time basis across portfolios.

1. Standardized, Simplified Transmission Process

Earlier, companies had varying local rules for documents needed, formats, eligibility etc. causing confusion on claims for families. Now, processes standardized:

A) Securities holding below ₹5 lacs

• Only specified documents like proof of holder’s death, claimant’s identity/address proof and nomination certificate required across firms. No ad hoc submissions. Listed in SEBI circular.

B) Holdings over ₹5 lacs

• Additional stipulation is furnishing PAN details of nominee(s)/claimant(s) for enhanced identity verification by RTAs.
• Standardized format given to apply for transmission that firms cannot modify or add fields to. Reduces paperwork.

By bringing in uniformity, transparency and simplification for transmission cases up to 5 lacs at least, SEBI move promises major ease of processes for common retail investors.

III. Digitization of Transmission Process

In another major positive, SEBI has also introduced digitalization of transmission procedures via Aadhaar e-KYC authentication route as an alternative to physical documents submission:

• Nominees can initiate transmission requests online supported through Aadhaar validation instead of needing to present in-person or send physical papers.
• Standard formats introduced which allow nominee details, entitlement percentages, bank account details for electronic transfer of securities etc. to be captured digitally.
• Allows remote initiation and faster claims processing – boon for families needing urgent access to finances or wanting to consolidate holdings.

So e-KYC authenticated transmission promises to reduce paperwork and delays significantly in the digital era through electronic validation mechanisms for inheritance cases.

Demystifying Key Terminologies

First, let’s get the basic terminologies clear:

Nomination – The process of designating one or more persons to inherit your investment assets (shares/mutual funds) if something happens to you.

Transmission – The actual transfer of shares/mutual funds to your nominee(s) or legal heirs as per your Will or succession laws upon your demise.

Let’s explore the enhanced nomination and transmission processes now made simpler by SEBI.

1. Enhanced Nomination Facility

• Multiple nominees can be assigned proportional percentages now instead of the earlier ‘either-or’ rule. For instance 40% to spouses, and 30% each for 2 kids.
• Nomination mandatory for new demat accounts – ensures your shares are passed on and don’t get stuck later.
• One-time nomination can be provided by investors during account opening which will apply to all holdings. Saves the hassle of nominating everytime you purchase new shares.
• Nominee details to be captured by broker/RTA while opening the account. Can be amended/updated digitally later anytime.

The enhanced nomination norms bring flexibility, digitization and ease for investors to secure the family’s future.

2. Simplified Transmission Process

Earlier, companies had their own procedures and requirements for documents which differed from registrar to registrar. Now, SEBI has standardized transmission requirements across companies/RTAs:

A) For Securities Holding below Rs 5 lacs:

Only a simplified standardized format given in SEBI circular needs to be submitted by claimant(s) for transmission along with the following documents:

1. Proof of Death of Security Holder
2. Proof of Relationship of Claimant with the Security Holder
3. Bank Account Proof of the Nominee/Claimant

 

B) For Securities Holding above Rs 5 lacs:

Apart from the 3 documents above, PAN Card copy of claimant/nominee will also be required.

C) Timeline for Transfer: Once claimant submits complete documents, the company/RTA have to complete transmission and credit securities to the nominee’s demat account within 15 days.

So now nominee/claimants have standard procedures and common document checklist for inheritance across all companies and RTAs for timely transmission. Fuss-free!

 

Digitization of Transmission Process

In another major move to enhance investor experience, SEBI has also introduced digitization of transmission requests through the eKYC Aadhaar process. Here is how it helps:

• Nominees can submit transmission documents and initiate requests digitally from anywhere without needing to present in person.
• RTAs/companies will use claimant’s Aadhaar ID for electronic verification vs physical document checks.
• Helps speed up verification and transmission to within a few days instead of weeks earlier.
• Convenient and paperless for inheritors – critical in current times.

So digital transmission through eKYC authentication promises timely, contactless transmission aligned to the digital era.

Common Scenarios of Share/MF Inheritance & Applicable Rules

Let us understand how the standardized SEBI guidelines apply to some common real-life inheritance situations:

Scenario 1: Single Shareholder/Investor (no existing nomination)

Samir held shares worth Rs 10 lakhs in Infosys Ltd and few mutual funds which he wanted his two children Ria & Rahul to inherit. Unfortunately Samir did not make any nomination. In such a case:

• As per new SEBI rules, Ria & Rahul being Class I heirs (Direct family of original holder) can inherit Samir’s portfolio by submitting specified documents like death certificate, relationship proof, bank account proof etc. within stipulated claim timelines to company RTA.
• If the total holding amount is below Rs 5 lacs, simplified claim format prescribed by SEBI needs to be submitted.

Scenario 2 : Joint Shareholders (parents) with one nominee

Ravi and Renu held ICICI Bank shares worth Rs 8 lakhs jointly with nomination assigned to their son Raj. In such case, after death of both Ravi and Renu:

• Raj being the designated nominee, inherits the entire shares seamlessly. Only submission of parents’ death certificates along with his identity/bank account proof needed to claim the shares with simplified forms.

Scenario 3: Single Investor with Multiple Nominees

Kumar assigned 60% of his HDFC mutual funds to brother Ramesh and 40% to sister Reeta.

• As per new SEBI rules allowing proportional split to multiple nominees, Ramesh and Reeta can claim 60% and 40% of funds respectively on Kumar’s death through submission of standardized documents.

The simplified rules now accommodate various scenarios providing legal heirs means to claim rightful share of investments smoothly.

Claiming Unclaimed Shares or Dividends

Another relief is that SEBI eased rules for claiming unclaimed shares, dividends and interest amounts of deceased shareholders transferred to IEPF after 7 years:

• Earlier only a legal heir or nominee could file a refund claim with IEPF authority. Complex paperwork.
• NOW the demat account holder, (if different from original shareholder), can directly file a claim with company/RTA supported by simplified documents.

This saves heirs effort and cost of applying through the IEPF route.

Unclaimed Investor Dues Made Easier to Recover

Over the lifetime of share investments, there may arise situations where dividends or other corporate benefits remain unclaimed by retail shareholders due to reasons like outdated contact information, change of location etc.

As per current norms, any dividends unpaid or unclaimed for a continuous period of 7 years have to be transferred by companies to the Investor Education and Protection Fund (IEPF) administered by the Ministry of Corporate Affairs. The corresponding shares are also moved to an IEPF demat account thereafter.

Until now, for original shareholders to recover these unclaimed amounts or shares after transfer to IEPF, their legal heirs or nominees had to file an online claim in the prescribed Form IEPF-5 along with verification documents directly with the IEPF authorities. This process was cumbersome for common investors.

However, in a welcome move, SEBI has simplified norms for investors whose shares/holdings may have elapsed into the IEPF:

• As per new process, the demat account holder, even if they differ from the original shareholder, can directly approach the company’s RTA for initiating claim of unclaimed shares/dividends/interest from the IEPF.
• They need to simply submit a copy of the death certificate of the original holder along with standard KYC documents like identity proof, address proof etc as required by the RTA/Company.
• This direct route for refund through the company/RTA supersedes the earlier protocol of filing forms with the IEPF Authority, thereby saving legatees effort and cost.

The simplified norms will come as a relief for common investors who often find it difficult to manage the complex IEPF claim procedures and can now expedite recovery of what rightfully belongs to them or their families.

So ensure your investments work harder for you by keeping contacts updated with portals and registrars. For unclaimed amounts accruing to IEPF, the direct refund route promises faster access now to your hard-earned capital and dividends.

Key Takeaways from New SEBI Inheritance Rules

• Nomination mandatory for new demat accounts – ensures legacy transfer.
• Multiple nominees can be assigned with percentage splits.
• Standardized format and common documents required for transmission by RTA/company across shareholdings below 5 lacs.
• Digitization introduced for transmission through eKYC for enhanced ease.
• Legal heir exempted from IEPF refund claim if amount in separate demat account etc.

So updated rules drastically improve succession experience for both retail equity investors and mutual fund holders while securing family’s rights.

Common Queries on Share/MF Inheritance Simplified!

Still have some doubts on how the new SEBI guidelines impact your specific share/MF inheritance situation? Here are some common queries simplified:

I holds shares jointly. Is nomination required?

It is advisable to have nomination even for joint holdings as it clearly assigns the asset to designated nominee(s) in case of any unfavorable event. Smoothens transmission.

Can I assign multiple nominees to inherit my demat assets?

Yes, SEBI rules now permit allocation of securities holding percentage wise amongst multiple nominees uniquely. Removes constraints of the old system.

What is the process if the nominee is a minor?

If the nominee is a minor at the time of investor’s death, the guardian can submit relevant KYC documents like bank account proof, birth certificate in addition to executing transmission on behalf of the minor.

How much time do I have to claim my inherited shares/funds?

The stipulated timeline to raise claims is 3 years from the date of holders’ demise. But it is prudent not to delay so that transmission formalities can be completed when markets are stable.

Can NRIs also nominate for demat accounts?

Yes, NRIs and OCI holders can also nominate individuals to inherit the assets in their Indian demat accounts by providing corresponding KYC documents and details.

So stay invested with your portfolio and heirs! Simplified norms by SEBI promise smooth legacy transfer of your share and mutual fund investments to the next generation. Cheers to carefree returns 

FAQs on Share/Mutual Fund Transmission for Investors

Q1. Can a NRI transfer shares in India through gift or will?

Yes, an NRI holding shares in Indian companies can transfer those assets to relatives or legal heirs through gift or bequest of their will. The beneficiary has to produce documents establishing relationship to the original shareholder along with PAN card, identity proof and signature verification for seamless transmission.

Q2. What tax is applicable if I inherit shares as a legal heir?

No income tax or capital gains tax is applicable if shares are inherited from a relative through will or succession. As per Section 56(vii) of Income Tax Act, property received from a relative without adequate consideration is exempted from tax. Relatives include the spouse, brother/sister of the taxpayer.

Q3. Can I delete or modify an existing nomination once made?

Yes, investors can modify an existing nomination for their demat accounts if they want to change nominees or update their allocation percentages. You can submit a request for deleting or change in nomination digitally to your DP anytime.

Q4: I bought shares under my wife’s demat account. Who gets rights to these shares after my death?

For shares purchased under your spouse’s demat account, they retain absolute right of ownership irrespective of source of funds. So upon your demise, your wife would be the rightful owner unless it is jointly held and has joint/secondary holder nomination specifically mentioned.

Q5. How can NRIs ensure smooth transition of assets to heirs in India?

NRI investors should ideally set up a Power of Attorney in favor of a trusted family member or CPA/lawyer in India so they can easily execute transmission formalities with RTA/companies locally upon applicant’s death overseas or if they relocate back permanently. Smoothens the process.