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A Demat account is a necessity to trade in the stock market. It is used to store various securities in a dematerialised format. Demat accounts are maintained and managed by depositories who are also responsible for the safety of these accounts. The two depositories in India are:
- National Securities Depository Limited (NSDL)
- Central Depository Services Limited (CDSL)
They provide various other services, which also include the conversion of physical securities into electronic format, helping investors to store their existing securities in a secure format. Another added safety feature is the option of having a nominee. It ensures that during an unfortunate event, if anything were to happen to the owner of the Demat account, its access and possession of its holdings were provided to the nominee or nominees. This ensures that the investments made are not lost.
On the 23rd of July 2021, under the SEBI/HO/MIRSD/RTAMB/CIR/P/2021/601 circular, the Securities and Exchange Board of India (SEBI) announced that investors must, especially while opening a new trading or Demat account, have the choice of providing nomination or opting out of it. Investors must either fill out the nomination form or opt out of the nomination via a declaration form, both of which are provided in the circular. Failure to do so would lead to the freezing of these accounts by the 31st of March 2022, according to the circular. This freezing date was revised to the 31st of March 2023 by a circular issued on the 24th of February 2022.
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How to Add a Nominee to a Demat Account?
The process of adding a nominee to a Demat account isn’t too difficult. Before adding a nominee, one must understand who can be a nominee. Any of your relatives, may it be your mother, father, siblings, children, spouse, or any other individual, can be added as a nominee. In case you’re wondering, a minor can be a nominee as well as long as their guardian details are also added. Any non-individual, such as a society, a corporation, or a Karta of a Hindu Undivided Family (HUF), can not be a nominee.
An individual can register a nominee while opening the Demat account by adding their names to the form to open the account. This isn’t mandatory as there is another step to add a nominee to a Demat account after the account is already opened.
To add a nominee after the account is already opened, one can also fill out the Annexure 1A form. The same form can be filled out and submitted to the broker to make changes or delete the existing list of nominees.
The changes to the nominee of a Demat account can be done in two ways—either through the online process or the offline process. In both these processes, you have to provide the nominee details, especially when you’re adding a nominee to your account. There could be a charge associated with the change or addition of nominees that the broker could apply.
Important Points to Consider while Adding a Nominee to a Demat account
There are certain pointers to keep in mind while choosing and registering a nominee to a Demat account. These are:
- Only an account held by an individual or by a few in the form of a joint account can have a nominee. An account held by a trust, a corporation, HUF, a power of attorney holder, etc. can not have a nominee associated with the account.
- A minor Demat account can not have a nominee, but a minor can be a nominee as long as the details of the guardian are provided.
- The nominee can not be a trust, society, corporate body, partnership firm, Karta of Hindu Undivided Family, or a power of attorney holder.
- An Non-Resident Indian (NRI) can be registered as a nominee, subject to the exchange controls in force, from time to time.
- To change the nominee in a joint Demat accout, all the account members’ signatures are required.
- In case of multiple nominees of a Demat account, the owner must specify the percentage of shares each nominee will gain. In case it isn’t specified, the holdings will be distributed equally among all the nominees.
How Many Nominees Can Be Appointed?
A single Demat account can have a maximum of three nominees. Make sure that you specify the percentage of your account that each nominee would stand to gain. This will ensure that no disputes occur during the settlement process. In case the percentage which totals 100 isn’t provided, then the holdings are distributed equally. The depositories and depository participants have to provide the holding to the nominees irrespective of the legal heirs.
Benefits of Adding a Nominee to a Demat account
Here are a few benefits which you should consider and add a nominee to your Demat account:
- In case of the unfortunate death of the owner of the account, the nominee can sell the different securities in the account and use those funds.
- It’s the best way to circumvent long procedures and legal battles to get the various documents and no objection certificate.
- Your untimely demise can leave behind many expenses which can be covered by your family if a family member is the nominee of your account.
Conclusion
Learning how to add a nominee to a Demat account is extremely helpful to safeguard your holdings and pass them on, especially during an unfortunate event. However, make sure that you know all the criteria and appoint a nominee wisely.