SEBI steps in to help, making it easier to transfer investments to family members after an investor passes away

 SEBI steps in to help, making it easier to transfer investments to family members after an investor passes away

When an investor's death is reported to a SEBI-regulated entity by the joint holder, nominee, or a family member, the information is updated across all of these entities. From January 1, 2024, a SEBI circular formalizing this change will be in force.

The creation of a centralized mechanism to register an investor's death across all investment products at once has been announced by securities market regulator SEBi

The creation of a centralized mechanism to register an investor's death across all investment products at once has been announced by securities market regulator SEBI. When an investor's death is reported to a SEBI-regulated entity by the joint holder, nominee, or a family member, the information is updated across all of these entities. The remaining family members will feel a great sense of relief as a result.

Currently, each organization where the deceased had investments must have this information updated separately, including mutual fund companies, brokerage firms, portfolio management services (PMS), and alternative investment funds (AIF). This was a complicated process because each entity had different procedures to follow and documentation requirements. Beginning the following year, that will alter.

On October 3, SEBI released a circular explaining the general specifics of this centralized mechanism. Once a standard SOP (standard operating procedure) is established, the specifics of how they will be applied will be known. The circular will become operative on January 1, 2024.

"This is a really positive step that will simplify the process and benefit the investor's family members. However, it's too early to predict how the procedure will work. The SOP must come first. Additionally, the procedure will change over time, according to Sunil Nair, chief operating officer of MF Utilities, a platform for mutual funds supported by the AMFI industry association.

What is about to alter

Today, when an investor passes away, the joint holder, nominee, or family member (as applicable) must notify each mutual fund house, broker, etc. about the investor's passing so that the investment account information can be changed appropriately. distinct entities have distinct procedures and documentation needs. "SEBI is referring to a uniform procedure used by all SEBI-registered intermediaries. Consequently, you won't need to, say, visit each mutual fund AMC (asset management company) to update the details of the deceased investor. According to Vishal Dhawan, founder and chief executive officer of Plan Ahead Wealth Advisors, if you change it once for one AMC, it will update for all the AMCs where that person has interests.

The joint holder, nominee, or family member of a deceased investor will need to notify any intermediary—AMC, brokerage, PMS, etc.—and provide them with the deceased investor's death certificate and PAN, according to a few industry professionals we spoke with who had read the circular. The intermediary will transmit this information to the KRA (KYC registration agency) the same day after verification. Additionally, debit transactions on the investor's account will be prohibited. The account status will be updated to "blocked permanently" once the KRA independently validates the documents, and all other intermediaries will be informed of this.

While the investment is being transferred to the proper party, any fraudulent transactions will be stopped by blocking.

However, the account will continue to be active in the case of jointly held investments (in either or survivor, or anybody or survivor mode - where any of the joint holders may manage the account).

Kashmira Kalwachwala, Head of Investor Services at Tata Mutual Fund, commented on how the most recent SEBI action will benefit investors, saying, "The SEBI circular places the onus on the intermediary to notify the KRA of the demise of an investor by submitting a KYC change request. In order for the change to be reflected across all linked intermediaries, the KRA must update the KYC record and notify all linked intermediaries of this update. This will make it easier for investors (and those who inherit the investment) by establishing a consistent operating method.

Other problems

Although the SEBI action is a significant step toward making the transmission of investments simpler, the nominee or family member will still need to pursue additional matters.

Keep in mind that the nominee is merely a custodian and that the succession procedure must still be followed. If the deceased left a will, that will control this; otherwise, the applicable succession rules will apply, said Dhawan.

The centralized system would assist in updating the KYC for all investments made by deceased people and blocking them for security reasons. Once the nominee or family member provides the intermediary with the necessary documentation, these accounts will become operational.

According to Lindo Paul, AVP, Business, Zerodha, the family members frequently aren't even aware of all the investments made by the dead investor. "It would be incredibly beneficial if there were a system that allowed you to check on all of your investments in one location. That might be the next action in the plan that SEBI is putting into action, Paul suggested.

Investors should also be aware that only SEBI-regulated firms are permitted to set up blocking accounts following a person's death. It is still necessary to track bank accounts, insurance policies, and other assets individually.