A Demat account holds securities in electronic format and has replaced the need to physically store share certificates. This makes investing efficient and accessible for everyone. However, what happens to the investment holdings stored in a Demat account if the account holder passes away? Understanding how securities are transmitted in such circumstances is crucial.
This process, known as transmission, involves legal frameworks, documentation, and the involvement of designated depository participants (DPs).
In this article, we will cover how securities are transmitted upon the death of Demat account holders. From the situation of Nominees to Joint Demat Accounts, we will discuss everything you need to know about this important aspect of managing investments after a person's demise.
The process of transfer of securities in a Demat account after the death of the account holder depends on whether the account was held singly or jointly and whether there was any registered nominee.
When a Demat account is held by a single individual who has followed the process to add nominee to Demat account, the transfer of securities upon the account holder’s death is straightforward.
The nominee has to submit a transmission form, which can be obtained from the Depository Participant office or downloaded from the DP’s website.
Along with this form, the nominee must also provide a notarized copy of the death certificate, which must be attested by a Gazetted Officer or a Notary Public.
In addition to these documents, there's an important file called a Client Master Report (CMR) that contains all the details about a client and their nominee Demat account. This includes the following key details:
- Personal Details (Client’s name, address, email ID, phone number, and date of birth)
- Demat ID
- Account Status
- KYC Information (Aadhaar number and PAN details)
- Nomination Details
- Bank Information
When dealing with a nominee situation, having the nominee's CMR is crucial. You can easily download the CMR from your DP's trading platform website.
Once these documents are submitted and verified, they are transmitted to the Demat account nominee. The process typically takes around 15 working days after all required documents are submitted and verified by the DP.
In the event of the death of a single Demat account holder who has not registered a nominee, the securities are transmitted to the legal heirs as determined by a court order.
If the value of the securities is less than ₹1 lakh, the transmission process is simplified. In this case, the following documents need to be submitted:
- Transmission Form: This is a form that needs to be filled out and submitted to initiate the transmission process.
- Attested Copy of Death Certificate: A notarized copy of the death certificate of the deceased account holder needs to be submitted. This serves as proof of the account holder’s demise.
- Letter of Indemnity: This is a legal document in which the claimant(s) promise(s) to protect the depository participant (DP) from any potential losses incurred due to the transmission of securities.
- Affidavit: An affidavit in the prescribed format needs to be submitted. This is a written statement confirmed by oath or affirmation, for use as evidence in court.
- No Objection Certificate (NOC) from all legal heirs: This is a legal document issued by the legal heirs who do not object to the transmission of securities. It indicates that they have no objection to the securities being transmitted to the claimant.
Once these documents are submitted and verified, the DP will process the transmission request.
In the case of jointly held Demat accounts, if one of the account holders passes away, the securities are transmitted to the surviving holders. This process requires the submission of a transmission form and a notarized copy of the death certificate of the deceased holder.
It’s important to note that for the transmission of securities, the surviving holders need to have or open a separate Demat account with names in the same sequence as they appear in the joint account to be closed.
Let us talk about a shocking case of ghost trading. As per a news, a widow used her deceased husband’s demat and trading account for five years. Upon default by the stockbroker, she lodged a claim with NSE. The NSE Committee decided that after the husband passed away, the agreement between him and the broker no longer applied.
Therefore, any trades made in the Demat account after his death couldn't be considered valid or accounted for.
This makes it important to have appropriate transfer procedures in place and understand how to add nominee in Demat account to make sure that the investment holdings are transferred to your loved one. It is also made mandatory by SEBI to add nominee to Demat account.
Knowing how securities are transmitted upon the death of a Demat account holder is important for ensuring a smooth asset transfer. By understanding the legal framework and following the necessary steps, heirs can avoid complications.
Importantly, having a Demat account nomination simplifies this process, providing clarity and ease during difficult times. Proper planning and knowledge can make all the difference in managing investments after a person's demise.
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