A Demat account is a necessary tool for any investor who wants to trade in stocks and other securities. A Demat account is like a bank account where the investor’s securities are held in electronic form. With a Demat account, investors can buy and sell securities without the need for physical certificates. However, what happens to these securities when the investor passes away? This is where the concept of Demat account nomination comes into play. In this article, we will discuss the concept of Demat account nomination and how it works.
What is Demat account nomination?
Demat account nomination is a process in which an investor designates a person or entity to receive the securities held in the Demat account in the event of the investor’s death. The person or entity designated to receive the securities is called the nominee.
Nomination is a voluntary process and is not mandatory. However, it is highly recommended that investors nominate a person or entity to receive the securities held in their Demat account in the event of their death.
The nomination process is regulated by the Depositories Act, 1996, and the Securities and Exchange Board of India (SEBI). Under the Depositories Act, a nominee can be a person or an entity, such as a trust, society, or association.
Why is Demat account nomination important?
Demat account nomination is important because it helps to ensure that the investor’s securities are transferred to the nominee smoothly and without any legal hassles in the event of the investor’s death. Without a nominee, the legal heirs of the investor would have to go through a lengthy legal process to claim the securities held in the Demat account.
Nomination also helps to avoid disputes between legal heirs over the ownership of the securities held in the Demat account. In the absence of a nominee, the legal heirs may have to go through a long legal battle to establish their ownership of the securities, which can be time-consuming and expensive.
Nomination also helps to ensure that the investor’s wishes are carried out after their death. For example, if an investor wishes to leave their securities to a particular person or entity, they can nominate that person or entity as the nominee.
How to nominate a person or entity for Demat account?
Nomination for a Demat account can be done at the time of opening the account or later by submitting a nomination form to the depository participant (DP) with whom the investor has opened the Demat account. The nomination form should contain the name, address, and other details of the nominee, as well as the relationship between the investor and the nominee.
The investor can nominate up to three nominees for their Demat account. If the investor wants to change the nominee or the percentage of securities to be transferred to each nominee, they can do so by submitting a fresh nomination form to the DP.
It is important to note that the nominee does not become the owner of the securities held in the Demat account until the death of the investor. Until then, the investor retains full control over their securities, including the right to buy, sell, and transfer them.
What happens after the death of the investor?
After the death of the investor, the nominee has to inform the DP of the investor’s death and submit the necessary documents, such as a death certificate, to claim the securities held in the Demat account. The DP will then transfer the securities to the nominee’s Demat account.
If the investor has nominated more than one person or entity, the securities will be transferred to the nominees in the proportion specified in the nomination form. If the investor has not nominated anyone, the legal heirs of the investor will have to establish their ownership of the securities through a legal process.
In some cases, the legal heirs may challenge the nomination made by the investor. For example, if the legal heirs believe that the nominee is not entitled to receive the securities, they may file a legal suit to challenge the nomination. However, in most cases, the nomination made by the investor is binding, and the securities will be transferred to the nominee.
It is important to note that the nominee is only entitled to receive the securities held in the Demat account. If the investor had other investments, such as bank accounts or fixed deposits, the nominee will have to go through a separate legal process to claim those investments.
How to update Demat Account Nomination in Zerodha?
Zerodha is one of the leading discount brokers in India, offering a range of trading and investment services. If you hold a Demat account with Zerodha and want to update your nomination details, you can do so by following these simple steps.
Step 1: Login to your Zerodha account Visit the Zerodha website and login to your account using your login ID and password.
Step 2: Go to the Profile section Once you are logged in, go to the ‘Profile’ section of your account.
Step 3: Click on the ‘Update Nominee’ option Under the Profile section, you will find the ‘Update Nominee’ option. Click on this option to update your nomination details.
Step 4: Provide the required details You will be directed to a page where you need to provide the required details such as the name of the nominee, relationship with the nominee, percentage of securities to be transferred to the nominee, and other details.
Step 5: Upload the nomination form Once you have filled in all the required details, you need to upload the scanned copy of the nomination form. The nomination form is a standard form that is available on the Zerodha website. You can download the form, fill in the details, sign it, and upload it in the required format.
Step 6: Review and submit After you have uploaded the nomination form, review all the details carefully and click on the ‘Submit’ button to complete the process.
Once you have submitted the nomination form, the updated nomination details will be reflected in your Zerodha Demat account. It is important to keep your nomination details updated to ensure that your loved ones receive the securities held in your Demat account in the event of your death.
FAQs on Demat Account Nomination
A nomination in a Demat account is the process of appointing a person or entity to receive the securities held in the Demat account in the event of the account holder’s death.
No, nomination is not mandatory for a Demat account. However, it is highly recommended to ensure that the securities held in the account are transferred smoothly to the nominee in the event of the account holder’s death.
An investor can appoint up to three nominees for their Demat account. The percentage of securities to be transferred to each nominee can also be specified.
Yes, the nominee for a Demat account can be changed at any time by submitting a fresh nomination form to the Depository Participant (DP) where the Demat account is held.
Yes, a minor can be appointed as a nominee for a Demat account. However, in such cases, an appointee must be specified to receive the securities on behalf of the minor until the minor attains majority.
No, a nominee cannot sell the securities held in a Demat account. The nominee is only entitled to receive the securities and is required to transfer them to the legal heirs of the deceased account holder.
If the nominee predeceases the account holder, the nomination becomes invalid, and the legal heirs of the account holder will be entitled to receive the securities.
Yes, a nominee can be appointed for joint Demat accounts. In such cases, the securities held in the account will be transferred to the nominee only in the event of the death of all the account holders.
Conclusion
In conclusion, Demat account nomination is a crucial aspect of investing in securities in India. It helps to ensure that the securities held in the account are smoothly transferred to the nominee in the event of the account holder’s death. While nomination is not mandatory, it is highly recommended for all investors who hold securities in Demat form.
An investor can nominate up to three nominees and can change the nominee or the percentage of securities to be transferred to each nominee at any time by submitting a fresh nomination form to the DP. It is essential to keep the nomination details updated to ensure that the investor’s wishes are carried out and their loved ones are taken care of after their death.
It is important to nominate a person or entity who the investor trusts to receive their securities after their death. The nominee is only entitled to receive the securities held in the Demat account and is required to transfer them to the legal heirs of the deceased account holder. If the nominee predeceases the account holder, the nomination becomes invalid, and the legal heirs of the account holder will be entitled to receive the securities.
Investors must understand the importance of Demat account nomination and ensure that they have nominated a person or entity for their account. It is a simple process that can be done online, and investors can easily update their nomination details as and when required. With proper nomination, investors can have peace of mind knowing that their loved ones will be taken care of after their demise.