Sebi norms ease investment access for the incapacitated

The new rules aim to simplify nominee access to investor accounts, but raise fresh concerns

- Aprajita Sharma

Picture this: A family's financial stability teeters on the edge when the primary earner is hospitalized after a sudden accident. With only ₹2 lakh liquid in the bank and the rest tied up in mutual funds and stocks, the family is unable to access savings. The incapacitated breadwinner cannot operate his accounts, leaving the family stranded in their time of need.

To address such scenarios, the Securities and Exchange Board of India (Sebi) has rolled out revamped rules that allow nominees to manage the accounts of physically incapacitated investors without requiring a power of attorney (POA). Announced on 10 January, these rules aim to provide families with a financial safety net. However, experts warn of limitations and potential challenges.

Easing access but with caveats

Sebi's new guidelines allow single-holding investors to authorize one nominee (excluding minors) to operate their accounts if they are physically incapacitated but still mentally capable of contracting. Redemption proceeds are credited directly to the investor's linked bank account.

However, nominees cannot update bank accounts or contact information. Additionally, the provisions exclude investors in critical conditions, such as coma or on ventilators. While this is one of several revamped rules designed to help mutual fund and demat account holders manage their investments during sudden illnesses or death, experts warn the rules may lead to unintended consequences.

"Redemption by a nominee operating on behalf of an incapacitated asset owner is prone to abuse; policing of the same could be a huge challenge for the Sebi and humongous work for the depository participants (DPs) and asset management companies (AMCs)," said Rajat Dutta, founder of Inheritance Needs Services.