Summary: SEBI’s circular dated May 29, 2026 modifies the nomination framework applicable to demat accounts and mutual fund folios, with effect from September 1, 2026. The framework responds to operational difficulties associated with the earlier January 10, 2025 circular and seeks to balance investor protection, reduction of unclaimed assets and ease of investor onboarding. For single accounts or folios opened after implementation, nomination becomes the default choice unless the investor submits the prescribed opt-out declaration, while nomination remains optional for jointly held accounts. The revised framework simplifies documentation by distinguishing mandatory information from optional nominee details and relaxes witness requirements for physical nominations, while permitting prescribed digital authentication methods. Investors may nominate up to three persons, specify their respective shares and change or cancel nominations without restriction. Regulated entities must also provide acknowledgements and use periodic statements, bi-annual communications and online pop-ups to encourage investors without nominations to complete the process. The article evaluates this framework through the concept of “Libertarian Paternalism”, under which investors retain freedom of choice while the system nudges them towards nomination. It identifies potential benefits for onboarding and succession planning while also highlighting concerns regarding investor awareness, meaningful opt-out decisions and the effectiveness of periodic reminders, particularly for younger investors.
Balancing Investor Protection and Ease of Doing Business SEBI’s Modified Nomination Framework
- Introduction
- Background & Context
- Key Modifications Analysed
- 1. Default Choice Framework: Mandatory with Opt-Out
- 2. Simplified Documentation: Reducing Procedural Burden
- 3. Flexibility Features: Options for Investors
- 4. Nudge Architecture: Use of Behavioural Economics
- Critical Assessment
- Implications for Stakeholders
- Conclusion
Introduction
The Securities and Exchange Board of India (SEBI) issued a circular on May 29, 2026 [1] that changes the way in which the nomination process works for dematerialised account holders and mutual fund folio holders. This circular is a substantial shift from the way SEBI directed this issue on January 10, 2025. The new circular will be in effect on September 1, 2026 and was created to assist stakeholders in the operational challenges that they experience as a result of the previous framework. This new approach to the issue of unclaimed assets provides for a balance between the desire to prevent unclaimed assets and the practical realities involved in onboarding new investors. This paper will analyse how SEBI has changed its approach in order to establish a framework that will provide for the protection of an investor’s interest while at the same time reducing compliance friction.
Keywords: Nomination Framework, Libertarian Paternalism, Unclaimed Assets, Default Opt-Out, Investor Protection.
Background & Context
The January 2025 circular aimed to improve the process of onboarding investors and to avoid unclaimed assets. When an investment asset has no designated beneficiary, it will be challenging for heirs to receive their inheritance from a deceased individual’s investment holdings. This situation occurs because the heir must go through the process of obtaining court authority to collect the investment assets from the decedent’s estate. This is a major source of confusion for asset management companies (AMCs), registrar and transfer agents (RTAs), depository participants (DPs), and depositories throughout this process. After consultations with the public, SEBI has decided how best to respond to those issues with a new circular that will replace the previous 18 circulars issued by SEBI since 2002. The May 2026 circular is SEBI’s considered response to the original January 2025 circular .
Key Modifications Analysed
1. Default Choice Framework: Mandatory with Opt-Out
Investors who start a single or folio account after September 1, 2026, will automatically be considered to have chosen to nominate their account unless they provide a Declaration (Annexure B) indicating otherwise. The exit from default with the option to nominate within the account(s) will allow investors to meet required (nominated) or fully voluntary nominations in the best possible manner. Nominations on Joint Ownership Accounts are optional; joint owners can identify the joint owner and how succession works for joint ownership. Consent from all joint holders is required before adding or removing their joint account for the nomination to occur, regardless of how the joint account is managed. If an Investor does not assist in this process and does not have a nomination or nomination documents, it will result in: (i) an increased amount of time to acquire the nominated account; (ii) an increased amount of time if there is no nomination to provide necessary documentation to transfer; and (iii) unclaimed securities can be transferred to the Investor Education and Protection Fund Authority (IEPF) if there is an unjustified delay due to lack of a nomination.
2. Simplified Documentation: Reducing Procedural Burden
As specified by SEBI regulations, there is both mandatory and optional information in an application to open an account with a financial service provider (FSP). The three required pieces of information (nominee name; relationship of nominee to the account holder; date of birth if the nominee is a minor) must be provided by the account holder. Additionally, the account holder may submit additional information at their discretion regarding the nomination, such as: (if there are multiple nominees) share percentages for each nominee, KYC identification number for each nominee, and KYC identification of the guardian for each nominee.
Another important change in the regulations pertains to nominee witness requirements: in the past, a witness was mandatory to witness the signing of a physical nomination page by the account holder. In the present regulations, the only requirement to sign a physical nomination page as an account holder is your own signature; in the event that an account holder uses a thumbprint as the signature of the account holder, a witness will still be required. Similarly, if an account holder is submitting a digital nomination for a nominee, the account holder can validate their digital nomination via: DSC; an electronic signature with Aadhaar; or 2FA using a one-time password (OTP).
3. Flexibility Features: Options for Investors
Investors have the option to name up to three individuals and specify what percentage of their assets go to each person. If no percentage is specified, the assets will be divided equally among the named individuals. Odd lots will go to the first person named.
Investors can name individuals and change or cancel those names as often as they like. Regulated entities will send a confirmation to the investor every time they change, name or cancel a nomination. This makes sure that the way nominees are named can change when a family situation changes.
4. Nudge Architecture: Use of Behavioural Economics
The regulated entities will send two reminders to the investors annually, through email and/or text message, and they will also include pop-up reminders on the website every time the investor logs in, to encourage investors to register a nominee (including those investors who have chosen not to register a nominee).
Once a nominee has been named, the investor will no longer receive reminders and thus will be able to avoid feeling overwhelmed. Each time the investor receives a periodic statement, the statement will show whether the investor has named a nominee by listing the names of nominees or with the words “Yes/No”.
Critical Assessment
Strengths: Evidence of SEBI’s commitment to being open to input from the people with this framework. Each individual will be given the option to opt out when applying for a nomination in a single account, and this will create an opportunity for higher rates of nominations while keeping their freedom intact. The application process will reduce friction from the onboarding process and will make it easier to apply for a single account if you are a new investor.
Differentiating between mandatory and optional will prevent an entity being regulated from making anything other than what can be classed as mandatory. The provision allowing unlimited changes will accommodate the fact that family situations will change.
Concerns: The opt-out process will only be effective if investors are aware of it. There is potential for investors to sign these forms without understanding what they are signing. Bi-annually enhancing the reminder will likely not be enough for younger investors who may not think about estate planning as a 20-year-old.
Comparative Perspective: The framework provides a mechanism for creating a “Libertarian Paternalistic” framework that maximises the freedom of the people within the framework while creating a structure to provide guidance to make positive decisions as it applies to different entities and individuals. This aligns with global best practices such as automatic enrolment into pension plans in Australia and the United Kingdom.
Implications for Stakeholders
Possibilities: The Securities and Exchange Board of India (SEBI) has taken an active role in soliciting comments from stakeholders regarding the framework for this initiative. The requirement for single account holder opt-outs may increase nominations while still allowing individuals to maintain their right to choose or trust their preferences. The reduced documentation requirements have lowered the barriers to entry for onboarding, particularly for new investors.
The separation between mandatory and non-mandatory fields eliminates the potential for a regulated entity to designate a mandatory field. Users will be able to modify it as necessary going forward.
Obstacles: Notifying investors that they have opted out will be determined by the level of understanding the investor has at the time that the investor sign(s) the document(s). This will be critical to distributors because they will be responsible for notifying all investors for whom they are acting as the transactions manager, and to notify all investors who have signed their opt-out before there are older and wiser estate planner(s) to help them coordinate their affairs. Bi-annual reminders may be inadequate for new investors who will not begin using legal means of planning until much older.
International context: SEBI’s framework falls within the concept of “Libertarian Paternalism” in designing decision-making to support better choice decisions while ensuring individuals have as much freedom as possible, like automatic enrolment pension plans in the U.K. and Australia.
Conclusion
The modified nomination framework established by SEBI is the result of responsive regulation, which recognizes the actual situation on the ground while achieving policy objectives. In developing this framework, SEBI has used input from stakeholders and made it easier to implement; thus, creating a viable system that provides an equitable balance between the protection of investors and facilitating ease of doing business. Testing this framework will determine its success or failure based on the ability for investors to give effective opt-out decisions prior to a nomination, and the ability for investors to finish nominations at a high rate. This circular provides an outline for practical regulation that meets the needs of investors without creating unnecessary barriers to the existing market infrastructure.
