The recent circular from the Securities and Exchange Board of India (SEBI), directing the inclusion of mutual fund folios and demat account holdings in DigiLocker, aims to address the growing issue of unclaimed and unidentified assets in the financial market. While SEBI’s intention is commendable, the provisions of this circular seem far removed from the ground reality. Let’s explore this in detail.
What is DigiLocker? As the name suggests, DigiLocker is a digital wallet launched by the Government of India for storing documents in digital form. Currently, DigiLocker supports documents such as Aadhaar, PAN cards, insurance policies, driving licenses, bank account statements, New Pension System (NPS) statements, and birth and death certificates. These documents are considered equivalent to originals because they are sourced directly from official government agencies like NSDL (for PAN), UIDAI (for Aadhaar), banks, and the Registrar General and Census Commissioner (for birth and death certificates). Now, mutual fund folios and demat account holdings have been added to this list.
What Has SEBI Done?: In an effort to reduce the volume of unidentified and unclaimed financial assets, SEBI has introduced mutual fund folios and demat account holdings into the DigiLocker system. Additionally, the DigiLocker system now allows users to nominate someone for their digital wallet. If the DigiLocker holder passes away, the nominee will be automatically notified of the holder’s financial assets. The system will capture the nominee’s email ID and mobile number, enabling them to claim and transfer the assets after completing identity verification, subject to specific terms and conditions.
What Are the Stipulated Terms and Conditions? For SEBI’s initiative to succeed, the registration of death is a crucial step. Death can be reported either through a broker’s channel or via the Registrar General’s office. Once the death certificate is linked with Aadhaar, the system can promptly update the records. However, in cases where the death certificate is not linked with Aadhaar, the process may take longer, as the KRAs (KYC Registration Agencies) will need to update their database. It’s vital that people are encouraged to register deaths with the system to expedite the process.
A challenge could arise if the DigiLocker nominee differs from the nominee listed on the mutual fund folio or demat account. In such cases, the system will notify the DigiLocker nominee, but the benefits will be transferred to the respective nominees listed for the mutual fund and demat accounts. However, why would a DigiLocker nominee notify the other nominees if they aren’t personally benefiting from the transfer? This aspect of the SEBI circular fails to consider this social reality.
What If the DigiLocker Nominee and Mutual Fund/Demat Nominee Are the Same? : If the nominee in the DigiLocker wallet is the same as the nominee for the mutual fund or demat account, the process becomes simpler. In this case, the DigiLocker nominee would only need the death certificate to have the entire financial asset transferred to his/her name.
Banking and Demat Accounts of the Deceased: A Growing Issue: A new trend has emerged in the socio-financial landscape where families of the deceased do not submit the death certificate to banks or KRAs. Some relatives have found it beneficial to rent out the deceased’s bank or demat accounts to cybercriminals. These “mule accounts,” which are immune to prosecution due to the account holder’s death, are in high demand.
Conclusion: The regulatory landscape is evolving, and the provisions of the SEBI circular may be refined over time. While the initiative to include mutual fund folios and demat account holdings in DigiLocker is a step in the right direction, its success will depend on addressing the challenges outlined above, as well as the social realities that SEBI’s current framework does not fully account for.
