How an Incapacitated Can Access Mutual Funds & Demat

In an unfortunate turn of events, an accident may make a person incapacitated and he may not be in a position to sign or make himself available to withdraw his investments. This money may be required for further treatment or some family needs. SEBI, on Jan 10, 2025, came up with the answer and Process on How Incapacitated Can Access Mutual Funds & Demat Accounts.

Let us discuss today, the process laid out by SEBI for How Incapacitated Can Access Mutual Funds & Demat or Demat accounts in India, along with important caveats to follow while exercising this option.

How Incapacitated Can Access Mutual Funds & Demat?

The Securities and Exchange Board of India (SEBI) has introduced these new guidelines to ensure that incapacitated investors can manage their investments through nominated individuals.

These guidelines aim to provide a standardized and uniform process for dealing with incapacitated investors, ensuring smooth transmission of assets and reducing disputes.

1. Nomination: Investors can nominate up to 10 individuals for their Mutual Funds or Demat accounts. The nomination must be done personally by the investor, and Power of Attorney (PoA) holders are not allowed to handle this task.
2. Nominees need to provide essential identification details such as PAN, Aadhaar (last four digits), or driving license number.
3. Standard Operating Procedure (SOP): Mutual funds, brokers, and depositories are required to create a common SOP for dealing with incapacitated investors. This SOP includes verifying documents and ensuring proper checks to prevent misuse.
4. Medical Verification: For an investor to be considered incapacitated, medical verification is required. This ensures that the incapacitation is genuine and documented.
5. On receiving such request, doctor’s certificate & other documents, an AMC official visits the incapacitated person and verifies by taking thumb & toe impressions.
6. Nominee Empowerment: Once an investor is declared incapacitated, one of the nominees can operate the investor’s account.
7. The nominee must provide an in-person approval using a thumbprint or other authenticated marks.
8. Withdrawals are only allowed to the investor’s verified bank account to ensure safety.
9. Documentation: Minimal documentation is required for the transmission of assets. This includes a self-attested copy of the death certificate (if applicable), updated KYC details of the nominee(s), and discharge from creditors, if applicable.

Caveats to Follow

1. Trustee Role: Nominees act as trustees on behalf of the legal heirs. They are responsible for managing the assets. They have to ensure assets are transferred to the legal heirs as per the investor’s wishes.
2. Creditors’ Rights: If the investor has outstanding debts, creditors have priority over the assets. This means that any outstanding debts must be cleared before assets are transferred to nominees or legal heirs.
3. Record Retention: Entities (Mutual Funds or registrars) must keep nomination records for 8 years after the account is transferred. This ensures that there is a clear record of the nomination and the process followed.
4. Compliance: Investors must ensure that they comply with the new guidelines by the deadline set by SEBI. Non-compliance may result in complications during the transmission of assets.

Where this will not work?

How Incapacitated Can Access Mutual Funds & Demat 1

The process How Incapacitated Can Access Mutual Funds & Demat or demat account will not work under these 2 conditions:

• Incapacity means physical, not mental. A person in a comma or vegetative state cannot use this process. A person must be in the capacity to contract to use this facility.
• The bank details of the investor cannot be changed under this process. So they remain the same.

SEBI’s new guidelines for incapacitated investors aim to provide a streamlined and secure process for managing investments through nominated individuals. By following these guidelines and adhering to the caveats, investors can ensure that their assets are managed responsibly. Also ensures smooth transfer to their legal heirs.

I hope this information on How Incapacitated Can Access Mutual Funds & Demat helps! If you have any more questions or need further clarification, feel free to ask in the comments section below.