DigiLocker

SEBI's digital-locker push to cut unclaimed mutual fund assets — storing account statements so a registered nominee gets an alert on the investor's demise, without replacing the folio's own nominee.

In plain language

Unclaimed money sits in the securities market for a simple reason. Nobody who could claim it knew it existed.

DigiLocker is the Government's digital document locker. SEBI now wants to use it to close that gap.

Today, DigiLocker mostly stores one-time documents. Think of a PAN card, or a driving licence. SEBI's plan is to add documents that change often, too. A mutual fund's account holding statement is one such document. A depository's consolidated account statement is another.

The real payoff comes later, when an investor dies. DigiLocker's registered nominee then gets an SMS and an email the moment the death is recorded. The family does not have to go hunting for the news.

How it works

Two separate features sit under this heading in the workbook.

Storage. DigiLocker is proposed to hold documents that change over time — mutual fund statements and depository CAS — not just static IDs. RTAs have a central role in transmission on an investor's death, and the workbook's own view is that adopting DigiLocker eases that process for both the RTA and the nominee, because the nominee is notified without having to first discover which funds the deceased held.

DigiLocker nomination. Separately from the folio-level nominee an investor names with the AMC, an investor may also register a DigiLocker nominee. This is an additional layer, not a replacement: the workbook is explicit that a DigiLocker nomination does not override or replace the legal nominee already registered in the folio or demat account.

DigiLocker access can also matter earlier in the relationship: documents submitted online through DigiLocker or another source that can be verified online are one of the grounds on which SEBI has waived the requirement for in-person verification during KYC.

A worked example

Mr Bordoloi holds a folio worth Rs 6,20,000 that his children do not know about — he never told them, and he kept no paper statements at home. He had, however, linked his mutual fund statements to DigiLocker and named his daughter as his DigiLocker nominee.

When his demise is recorded, his daughter receives an SMS and an email from DigiLocker flagging that documents are available to her. She did not have to guess which of India's fund houses her father used — DigiLocker's notification pointed her straight to the account statement.

She still has to complete transmission the normal way — a Transmission Request Form, a death certificate, her own KYC — and the DigiLocker nomination did not by itself transfer the units to her; her father's registered nominee in the folio, if any, is who the units go to. If he had named someone else entirely as his folio nominee, that person — not his daughter — is who the RTA pays, whatever DigiLocker shows.

Why NISM asks about it

Chapter 12 (Investors in Mutual Funds), section 12.4.4, introduces DigiLocker as part of SEBI's push to reduce unclaimed assets, and section 12.6 (Nomination) adds the DigiLocker-nominee feature as an adjunct to folio-level nomination. Expect a question on what DigiLocker is used for in this context — reducing unclaimed assets and easing transmission — against distractors about KYC or payment.

Common exam traps

A DigiLocker nomination does not override the folio's own nominee. The two are separate, and the folio nominee is who the units actually go to.
DigiLocker's role here is notification and storage, not settlement. It alerts the nominee; it does not itself transmit units.
The documents proposed for DigiLocker are ones that update regularly — statements and CAS — a step beyond its older use for static documents like a PAN card.
Online submission through DigiLocker is also one of the recognised grounds to skip in-person verification during KYC, a separate but related use of the same platform.

Check yourself

1.DigiLocker, as used in mutual funds, is meant for:
1. a)Digital storage and retrieval of investor documents
2. b)Storing mutual fund units
3. c)Managing portfolio performance
4. d)Conducting eKYC for non-residents only
Show the answer
Answer: (a) Digital storage and retrieval of investor documents
Currently, Digi Locker is used mostly for one time storage of documents such as PAN Card, driving license etc. It is proposed that the DigiLocker facility may also be used for storage of documents that are updated regularly such as account holding statement of mutual funds, consolidated account statements issued by depositories.

Documents, not units.

Option B confuses it with a demat account, which is where units are held — unit holders may choose to hold their mutual fund units in a statement of account or in their demat accounts.

Option C names a function of the AMC.

Option D is too narrow on two counts. DigiLocker does assist KYC — IPV/ Video IPV shall not be required by the registered intermediaries when the KYC form has been submitted online, documents have been provided through Digi locker or any other source which could be verified online — but that is one use among several, and it is not confined to non-residents.

Why SEBI is promoting it. SEBI aims to reduce Unclaimed Assets in the Indian securities market through greater use of Digi Locker facility.

And the mechanism by which it does so: nominees of a Digi Locker facility will receive an SMS and email notification on the demise of the investor.

Which connects directly to the RTA's work. RTAs have a key role in transmission of investments on the demise of an investor. Adoption of DigiLocker facility will ease the transmission process for both the RTA and the Nominees.

One caution on nomination. In addition to folio-level nominations, investors may also consider registering on DigiLocker and specifying DigiLocker nominee(s). DigiLocker nomination does not override or replace the legal nominee in the folio or demat account.

Two different nominations, and the folio's governs the units.
2.What must an intermediary do on being notified of an investor's death?
1. a)Immediately transmit the units to the nominee without verification
2. b)Obtain the death certificate and PAN of the deceased and verify them, through the issuing authority's website or in original-seen-and-verified mode; then submit a KYC modification request and block all the deceased's folios for debit — joint and either-or-survivor accounts continuing to operate as per the original mandate
3. c)Freeze every account in which the deceased was named, including joint accounts
4. d)Take no action until a legal heir applies
Show the answer
Answer: (b) Obtain the death certificate and PAN of the deceased and verify them, through the issuing authority's website or in original-seen-and-verified mode; then submit a KYC modification request and block all the deceased's folios for debit — joint and either-or-survivor accounts continuing to operate as per the original mandate
SEBI has mandated a centralised mechanism for reporting the demise of an investor through KRAs. Once a KRA or other intermediary receives notification of the death of an investor, they are required to obtain the death certificate and PAN of the deceased and verify the same. The verification may be through the website of the issuing authority or in OSV (original seen and verified) mode.

Two documents, two acceptable modes of verification.

After verification of the details, the intermediary shall submit a KYC modification request and block for debit all folios of the deceased investor.

Blocked for debit — so nothing can leave the folio while entitlement is settled.

But not everything is frozen: joint accounts or E or S accounts shall be allowed to operate as per the original mandate.

Which disposes of option C. A surviving joint holder is not deprived of access to his own investment.

Option A skips verification entirely, and option D would leave the folio open to misuse in the meantime — the very risk the blocking prevents.

Why the mechanism is centralised. A death reported to one intermediary should protect the investor's holdings everywhere, and KRAs already share data through inter-operability process (IOP) with all registered intermediaries.

What follows next is transmission, and DigiLocker is being promoted to assist it: nominees of a Digi Locker facility will receive an SMS and email notification on the demise of the investor, and RTAs have a key role in transmission of investments on the demise of an investor. Adoption of DigiLocker facility will ease the transmission process for both the RTA and the Nominees.

And where a nomination exists: in case of death of an investor, the MF will transmit the units in favour of the nominee — which is precisely why AMCs and RTAs send a communication on fortnightly basis urging investors to complete the "choice of nomination".
3.Arjun Kapoor, the sole holder of a folio, wants to nominate his minor son Kabir. Which of the following is correct?
1. a)Kabir can be the nominee, and Arjun himself should be named as Kabir's guardian for the nomination
2. b)Kabir can be the nominee; guardian details must also be given — and Arjun, as the first holder of the folio, cannot be the guardian of the minor nominee for that folio
3. c)Kabir cannot be a nominee, since minors cannot enter into contracts
4. d)Kabir can be the nominee, and Arjun's Power of Attorney holder must be named as the guardian
Show the answer
Answer: (b) Kabir can be the nominee; guardian details must also be given — and Arjun, as the first holder of the folio, cannot be the guardian of the minor nominee for that folio
The workbook: "Nominees can be minors, in which case, the details of guardian will also have to be provided. First holder in a mutual fund folio cannot be the guardian of a minor nominee for that folio." Chapter 15 repeats: "Minor may be a nominee. In that case, a guardian must also be mentioned to manage the investments on behalf of the nominee."

Arjun is the first (and sole) holder, so someone else — Kabir's mother, for instance — must be named as guardian.

Option A is the trap — it is natural for a parent to be the guardian, but the first holder is specifically barred from being the guardian of a minor nominee for that folio. The nomination only takes effect on Arjun's death, when he could not act for Kabir anyway.

Option C confuses two rules. Minors cannot make a nomination — "Investments by minors cannot have a nomination" — but they can be nominees.

Option D is wrong — nothing requires a PoA holder to act as guardian, and PoA holders are kept out of nomination altogether: "A Power of Attorney holder cannot make a nomination. PoA holders are also not authorised to change the nomination details in an investor's folio. They also cannot be a nominee of the original investor."

Other nomination rules: "Only individual investors can make a nomination"; investors may instead "Opt out of Nomination"; and AMCs and RTAs encourage the "choice of nomination" "by sending a communication on fortnightly basis." A DigiLocker nominee "does not override or replace the legal nominee in the folio or demat account."

Where this is taught

Series II-B · Chapter 12: Investors in Mutual Funds

Free preparation for NISM Series II-B

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