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One of the most important but uncomfortable discussions is the one surrounding the life of shares after the demise of the original investor. Many times, upon the death of an investor, her/his family members have to run from pillar to post and face a lot of issues to claim the assets.
Also, the process for the same is cumbersome and there’s no uniformity. In order to streamline the process, market regulator SEBI, through its circular dated October 3, has announced the setting up of a centralised mechanism for verification in case of demise of investor. Here’s all you need to know.
Major hurdles
The transmission process of securities post an investor’s death was neither uniform nor was there a centralised process. Also, there were no defined turnaround times, leading to many claimants facing inordinate delays.
The grieving families had to deal with multiple institutions separately. For instance, assume an investor had investments in schemes of four mutual funds and stocks in demat accounts with three different depository participants (DP).
In case of the death of that investor, her/his family had to deal with each fund house and each DP individually as there was no single-window system. In case nominations were made by the deceased person, the nominees could get hold of the assets/ securities, but the proof of death of the investor, as well as supporting documents by claimants ultimately needed to be validated through a cumbersome legal process. Whether the legal heirs or true beneficiaries could rightfully get their due from nominees (in case legal heirs were not the nominees) was another question.
Centralised mechanism
Now, SEBI has decided to introduce a centralised mechanism for reporting and verification in case of the demise of an investor. Through this, SEBI aims to alleviate the burden on bereaved families by streamlining the process. This system is expected to be in place from 2024.
The centralised mechanism for reporting the demise of an investor is through KRAs (KYC Registration Agencies).
The death of an investor can be reported by the relevant parties — such as joint account holder, nominee, legal representative or family member.
The intimation of death should be accompanied with documents such as deceased investor’s PAN and death certification.
After successful verification, the KRA will update the deceased investor’s KYC status as ‘blocked permanently.
Further, the KRA shall inform all the intermediaries linked with the investments of the deceased investor, about the blocked KYC status. Then, it shall instruct them to block all the debit transactions (including non-financial transaction requests) in all of the investor’s linked accounts and folios.
Also, the subject person (nominee or legal heir, whoever is the notifier) will be informed about the transmission procedure within five days. They will also be provided the transmission request form and list of documents required. Surviving joint account holders will be directly informed in case of joint accounts.
Uniform standards
To make this entire process uniform, SEBI has directed bodies such as the stock exchanges, Association of Mutual Funds in India (AMFI), and Registrars Association of India (RAIN) to put in place a Standard Operating Procedure (SoP), which will also be available on the websites of the concerned intermediaries.
Bringing in KRAs into the process makes the proposed system centralised and, consequently, the number of doors that claimants need to knock to get inheritance is reduced.
Also, a SoP would bring in much-needed uniformity in the process. Ultimately, the centralised mechanism, along with the uniformity in process, looks beneficial as transfer of securities should be easier and faster.
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