What is Core & Satellite strategy?

After her father’s death, Anju discovered that he had made significant investments in the stock market and mutual funds. Anju, the only daughter of her parents, has been struggling for six months to claim these investments but has not succeeded yet.

To provide relief to individuals like Anju, the market regulator SEBI is planning to implement new rules in the industry. SEBI has prepared a system to transfer a deceased investor’s shares to nominees or family members. This mechanism will be implemented from the new year. After the rules come into effect, family members can easily claim the money invested in mutual funds and the stock market in case of the investor’s death.

Currently, to claim the balance amount of mutual funds, shares, and dividends after an investor’s death, the nominee needs around a dozen documents. These documents are verified at various levels. If a person has investments in four mutual fund companies, the nominee needs to file separate claims for each mutual fund. Similarly, if there are more than one demat account, a separate procedure needs to be followed for the shares held in each demat.  This process can often take more than a year to complete.

What is the new system?

In the new centralized verification system, there will be no hassle for the nominee in share transmission. This will be done following the KYC which is  (Know Your Customer) process and through Registration Agencies which are (KRA). The new system will be effective from January 1, 2024.

In the centralized system, Registered Investment Advisors or (RIA) and stockbrokers will verify documents. After receiving information about  investor’s death, the concerned intermediary will ask for the nominee’s PAN and Aadhaar card and investor’s death certificate. After that, the death certificate will be verified online or offline. After verifying the death certificate, the intermediary will have to request the KRA for KYC modification on the same day. Along with this, relevant documents will also need to be uploaded. During this time, the intermediary will have to ‘block’ the transactions related to the deceased investor’s account. After completing the centralized verification process, the investment in shares and mutual funds will be transferred to the nominee or legal heir’s account.

In the case of shares, under the current system, the nominee has to submit a transmission request form to the depository participant (DP) of the deceased individual. After filling out the form, he must deposit the deceased account holder’s death certificate, notarized by a notary. Additionally, documents such as relationship proof, identification, and address are also requested sometimes. If the nominee is not added, the process becomes even more complicated. In that situation, one would be required to obtain a succession certificate from the court. The new rules will simplify the process and relieve investors of all these hassles.

How will it be beneficial?

Certified financial planner Jitendra Solanki says that with SEBI’s new rules, in case of the investor’s demise, the process of transferring mutual fund units and shares will become quite easy. The demand for this system has been there for a long time. Until now, in case of the investor’s death, different mutual fund companies and companies facilitating the demat account had to follow different processes. This used to take a lot of time. In the new system, stock brokers, RIAs, and intermediaries like KRAs will find it much easier. with the document verification process becoming centralized, the nominee can process the entire investment from one place and transfer it to his account.