SEBI has introduced new guidelines for the nomination process related to mutual fund folios and demat accounts, effective March 1, 2025. These changes aim to enhance transparency and reduce unclaimed assets by ensuring proper nominees’ assignments.
From now on, as an investor, you’ll need to either nominate someone or officially opt out. If you haven’t already, now’s a great time to check if your nomination details are all set. If you don’t want to nominate anyone, you’ll need to formally opt out before the deadline to avoid complications.
So, what does this mean for financial institutions, brokers, and fintech platforms? Well, businesses are now required to integrate these rules into their systems. Brokers and depositories need to offer real-time video verification for opt-out requests. Similarly, mutual funds and asset management companies (AMCs) must update their accounts too.
In this article, we’ll help you stay informed on SEBI’s revised nomination rules for 2025, including essential updates, compliance laws and regulations, and their impact on your investments.
Understanding SEBI’s revised nomination process
As per the SEBI’s circular dated January 10, 2025, every investor must either nominate a beneficiary or submit a formal request opting out. This directive applies to all investments in securities, including stocks, bonds, and mutual funds.
Businesses and investors have a hard deadline for compliance—March 1, 2025. After this date, investors without a nomination or opt-out in place may face challenges in accessing or transferring their assets. The deadline is absolute, and no exceptions will be made.
If you’re wondering about the number of nominees, the good news is that you can nominate up to 10 people for each mutual fund or demat account. But remember, only the investor can nominate someone; PoA holders don’t have that power.
For your nominee to be valid, you’ll need to provide basic details like their PAN, Aadhaar number (just the last four digits), or even their driving license number.
You can also decide how to set up the nomination—either with joint accounts where multiple nominees share ownership or by assigning individual shares to each nominee based on the percentage you allocate in the nomination form. You can submit the nominations online using Aadhaar e-signatures or digital signatures, or you can go offline and submit a physical form.
Remember that your nominee details are important, so you need to retain nomination records for 8 years after the account is transferred. That way, you’ll have proper documentation in case of disputes or if your beneficiaries need to access your assets.
When an investor passes away, SEBI simplifies the process of transferring assets to the designated nominees. To complete the asset transfer, nominees must provide the following documents:
- A self-attested copy of the death certificate
- The nominee’s updated KYC details
- Discharge documents from creditors, if necessary
Nominees can choose to either jointly manage the investment with other nominees or divide the assets into individual accounts according to how the investor had specified in the nomination form.
If an investor becomes incapacitated due to health issues, SEBI allows nominees to manage the investments. However, to ensure the authenticity of the nominee’s actions, the nominee must provide in-person approval, typically using a thumbprint or another authenticated mark.
To further protect the investor’s assets, SEBI restricts withdrawals to the investor’s verified bank account. SEBI has also instructed mutual fund companies and depositories to create a Standard Operating Procedure (SOP) for handling these situations.
Now, if you choose to opt-out, the process can be done in two ways:
- Online mode: Investors can submit an opt-out request through a secure online portal, where they will need to complete a video verification. This ensures the opt-out decision is authentic and authorized by the investor
- Physical mode: Investors who prefer not to go through the online process can submit a signed acknowledgment form at the relevant office, with the option for physical verification if required
How SEBI’s rules impact financial businesses?
SEBI’s revised nomination process will have a significant impact on several sectors across the financial services industry. Here’s a look at how each group will be affected:
- For stock brokers & depositories
Brokers and depositories will need to implement real-time video verification systems to authenticate opt-out requests, verify the identities of investors, and prevent fraudulent claims.
The challenge here is striking the right balance between a secure verification process and a smooth, hassle-free experience for investors.
- For mutual fund houses & asset management companies (AMCs)
Mutual funds and AMCs will need to update their systems to include SEBI’s opt-out mechanism, which means every account will either need a valid nomination or an official opt-out request.
For firms managing thousands (or even millions) of accounts, tracking and managing these preferences is going to be no small feat. Further, they’ll have to ensure they can resolve any disputes that come up around nominations, which is a whole other layer of complexity.
- For fintech investment platforms
Fintech companies, especially those in wealth management and investment platforms, will face a major tech overhaul due to SEBI’s new rules.
They’ll need to integrate AI-powered video verification technology to verify investor identities using real-time face matching, making sure opt-out requests and nominations are legitimate and fraud-free. The real challenge will be incorporating these new features into their existing systems without disrupting the user experience.
- For NBFCs & banks handling securities
Non-Banking Financial Companies (NBFCs) and banks that handle securities will have to ensure that every investment portfolio is in line with the nomination process, keeping track of both nominations and opt-out preferences.
With thousands of portfolios to manage, these institutions will need to automate the process to keep things efficient and reduce errors. Without automation, manually tracking these preferences would be a logistical nightmare.
Compliance checklist for SEBI’s new nomination rules
SEBI’s revised nomination rules demand airtight compliance from financial institutions. Every brokerage, mutual fund house, and fintech platform must follow strict verification, documentation, and fraud prevention measures. Failure to implement these could lead to regulatory penalties or investor disputes.
Here’s a breakdown of key requirements and how to meet them.
- Customer communication strategy
All investors must be informed about mandatory nomination updates, with clear deadlines and step-by-step instructions. Emails, SMS alerts, and app notifications should announce the rule change and provide direct access to update forms.
Acknowledging receipt of these communications is critical, and both brokers and asset managers should implement read confirmations or digital acknowledgments to avoid disputes over non-compliance claims.
- Technology & process integration
To comply with SEBI’s rules, businesses may have to integrate video OTP workflows into their system. When an investor opts out, the system must verify their identity in real time using video authentication, ensuring that the person submitting the opt-out request is genuine.
It’s important that the video verification system is both secure and seamless, so it doesn’t create unnecessary friction for investors while remaining fully compliant with SEBI’s requirements.
- Regulatory documentation & reporting
Keeping track of opt-in and opt-out approvals is critical. Businesses may have to log and update each investor’s nomination or opt-out status in real-time.
Every action—whether they choose to nominate a beneficiary or opt-out—must be documented accurately. These records will be necessary for reporting to SEBI, so it is paramount for businesses to ensure that their systems can generate clear reports showing the status of each request. Timely updates to these records are essential to avoid penalties or compliance issues.
- Fraud prevention & KYC alignment
As part of the opt-out process, it’s essential to implement AI-powered liveness checks. These checks will use facial recognition and other methods to confirm that the person opting out is indeed the account holder and not someone impersonating them.
This helps meet SEBI’s standards for fraud prevention and safeguard the integrity of the process.
- Employee training for compliance teams
Businesses will have to ensure that internal teams are fully trained on the updated processes.
They need to understand how to handle opt-out requests correctly and be ready to assist investors if issues arise. Further, the staff must be equipped with information on how to troubleshoot technical problems with the video verification systems and help investors who may be confused about the process.
Keeping the team up-to-date and responsive will maintain smooth operations and compliance with SEBI’s guidelines.
Read More: A Comprehensive Anti-money Laundering Compliance Checklist
How you can implement SEBI’s nomination opt-out process?
If investors choose to opt-out, per SEBI’s new rules, financial institutions must follow strict verification protocols.
Here’s how you can execute the opt-out process with precision—
1. Online mode: AI-powered video verification
The fastest and most secure way to process opt-outs is through AI-driven video authentication. Investors will need to record a live video stating their opt-out decision. Real-time AI verification checks facial features against KYC records to confirm identity.
Additionally, an OTP-based authentication process is integrated to further secure the action, so that everything remains safe and reliable throughout. It’s a fast, modern solution that cuts down on paperwork and reduces the chance of human error.
2. Physical mode: manual submission
For investors who might not be as comfortable with digital methods, SEBI has kept the traditional option open.
Investors will need to submit a physical, wet-signed UAN form directly at the relevant office. This method, while slower, is still necessary for certain cases where the investor either doesn’t have access to the required technology or prefers a more personal approach.
While this option might not be as quick as the online method, it remains an essential part of the process to accommodate all types of investors. However, with digital adoption on the rise, this will likely be less common over time.
3. HyperVerge’s AI-driven compliance solution
Financial institutions processing high volumes of nomination opt-outs need a system that’s fast, accurate, and secure. Manual verification is slow, prone to errors, and vulnerable to fraud. Plus, SEBI’s evolving regulations require constant updates, stretching IT resources and making it harder to track drop-offs.
HyperVerge eliminates these challenges with its AI-powered, no-code platform that speeds up onboarding journeys up to 5x faster while maintaining 100% SEBI compliance. This identity verification system for security brokers is trained on diverse facial variations and ID formats, enabling seamless verification and fraud detection.
Some of the key features of HyperVerge’s solution include:
- Liveness detection: Confirms the presence of a real person during the opt-out process
- Deepfake detection: Identifies and prevents the use of fraudulent images or videos during identity verification
- Lip Reading: Verifies that the OTP is spoken by the customer in the video
- Face deduplication: Flags multiple accounts created by the same person, reducing the risk of fraud
- Facematch: Ensures the same user is present throughout the process, preventing impersonation.
- Speech-to-text match: Matches the spoken OTP with the displayed one to verify identity
- AI-powered fraud prevention: Detects suspicious patterns and fraudulent behavior in real-time
The platform smoothly integrates with existing KYC systems, allowing businesses to adopt it without disrupting their operations. It handles diverse facial variations and ID formats, improving accuracy and efficiency during verifications. This reduces the need for manual intervention, with a 95% auto-approval rate, ensuring that most requests are processed quickly.
HyperVerge also supports businesses with robust fraud detection tools. These tools include spoofing checks, face matching, and deep image analysis, which help minimize errors and fraudulent claims.
With a global presence covering 195+ countries, HyperVerge is scalable and adaptable, offering businesses a reliable solution to meet regulatory requirements while minimizing risk and increasing operational efficiency.
What happens if you don’t comply?
Non-compliance with SEBI’s updated nomination process can lead to serious consequences for businesses across the financial sector. Here’s what you stand to lose:
- Regulatory fines & SEBI penalties: Non-compliance with SEBI’s guidelines can lead to fines ranging from ₹10 lakh to ₹25 crore, or three times the profit gained from the violation, whichever is higher.
- Investor account freezing: For non-compliant accounts, SEBI has the authority to freeze investor accounts. This could disrupt operations and cause delays for both businesses and investors, making it difficult to access funds or process transactions. Account freezing can also lead to a loss of investor confidence, complicating relationships with clients
- Brand reputation damage: Investors are likely to lose trust in financial institutions that don’t follow the rules, especially when it comes to safeguarding their investments. A tarnished reputation can lead to a drop in client retention and reduced new investments
- Increased legal disputes: Non-compliance can trigger legal disputes, particularly related to inheritance and asset transfer. Without proper nomination details, the process of transferring assets to the rightful beneficiaries can become complicated and lead to lengthy legal battles. This can not only create financial strain but also damage the business’s reputation
Key takeaways
SEBI’s new nomination guidelines are here to bring more transparency and reduce unclaimed assets in the market. For businesses, this is an important shift that demands action. By staying compliant, you avoid penalties, account freezes, and potential damage to your reputation. The key is to act now and ensure all nomination details are up to date before the deadline.
If you’re feeling the pressure of keeping up with these changes, HyperVerge is here to help. With AI-powered solutions designed for seamless compliance, you can meet SEBI’s requirements without the hassle.
Reach out to HyperVerge to get ahead and stay compliant!
FAQs
1. What happens if investors do not update their nominations by March 1, 2025?
If investors fail to update their nominations by the deadline, their accounts may be frozen, restricting transactions such as redemptions, withdrawals, or transfers. This applies to mutual funds, demat accounts, and other SEBI-regulated investment platforms.
2. Are businesses required to track and store investor opt-out videos?
Yes, businesses must securely store investor opt-out videos as part of SEBI’s compliance framework. These recordings serve as legal proof of investor intent and must be retained for regulatory audits and dispute resolution. Storage must follow data security guidelines to prevent tampering or unauthorized access.
3. Can businesses integrate SEBI’s video OTP compliance with their existing KYC flow?
Yes, SEBI’s video OTP process can be integrated with existing KYC workflows. Platforms can embed AI-powered verification tools such as HyperVerge within their onboarding and account management systems, allowing seamless validation without disrupting user experience.
4. What are the penalties for non-compliance?
Non-compliance can result in regulatory penalties, operational restrictions, and reputational damage. SEBI may impose fines, suspend account access, or take legal action against financial institutions that fail to implement nomination updates or secure opt-out approvals.
5. How does AI-powered face matching help with fraud prevention?
AI-powered face matching verifies investor identity by comparing live video submissions with official ID records. Liveness detection prevents spoofing attempts, while deepfake detection flags AI-generated forgeries. These safeguards ensure only legitimate investors can update their nomination status, reducing identity fraud risks.
6. Do physical opt-outs require additional verification steps?
Yes, physical opt-outs involve manual verification processes, including signature authentication and document validation. Financial institutions may require additional ID proof or in-person verification to confirm investor intent. While slower than digital methods, physical opt-outs are necessary for cases where investors cannot complete online verification.
7. How do fintechs ensure a frictionless opt-out experience?
Fintechs optimize the opt-out process by leveraging AI-driven automation, video OTP authentication, and user-friendly digital workflows. Features like one-click integration, real-time identity verification, and step-wise journey tracking help investors complete opt-outs quickly while ensuring compliance. Customizable onboarding solutions further reduce friction and prevent drop-offs.
