Immediate relative
Also written Immediate relatives
A spouse, plus any parent, sibling or child of the person or of the spouse who is either financially dependent on them or consults them on securities trading decisions.
In plain language
Insider trading rules would be trivially easy to defeat if the account had to be in the insider's own name. So the regulations define a small circle of family whose trades are treated as the insider's own business.
Regulation 2(f) of the SEBI (Prohibition of Insider Trading) Regulations, 2015 defines an immediate relative as a spouse of a person, and includes a parent, sibling and child of such person or of the spouse, any of whom is either dependent financially on such person or consults such person in taking decisions relating to trading in securities.
The structure of that sentence is the whole point, and it is where marks are lost.
How it works
Read the definition in two halves.
The spouse is unconditional. A spouse is an immediate relative, full stop — no test of dependence, no test of consultation.
Everyone else is conditional. Parent, sibling and child — of the person or of the spouse, so in-laws are included — qualify only if one of two tests is met: financial dependence, or consulting the person when taking securities trading decisions. Either is enough; neither is presumed.
So an independently wealthy adult son who runs his own portfolio and never asks his father anything is not an immediate relative of his father, however close they are. A financially dependent mother-in-law is.
What follows from the label. On the fund side, the code of conduct that the CEO or managing director of every AMC must formulate regulates, monitors and reports dealings in mutual fund units by designated persons and their immediate relatives. Two obligations attach:
- AMCs must disclose, on the platform of the stock exchanges, holdings in units of their own schemes held on an aggregated basis by designated persons of the AMC, trustees, and their immediate relatives.
- Every transaction in units of their own mutual funds by designated persons, trustees and their immediate relatives must be reported by the person concerned to the compliance officer of the AMC within two business days.
An immediate relative is also the first of the categories deemed to be connected persons in the mutual fund list.
A worked example
Ms Kavita Desai is Chief Risk Officer at Meridian AMC and therefore a designated person. Her family:
| Person | Immediate relative? | Why |
|---|---|---|
| Her husband | Yes | Spouse — unconditional |
| Her daughter, 19, at university, supported by her | Yes | Child, financially dependent |
| Her brother, a practising surgeon who never discusses investments with her | No | Sibling, but neither dependent nor consulting |
| Her father-in-law, retired, who calls her before every mutual fund purchase | Yes | Parent of the spouse, and consults her |
| Her son, 27, salaried, who asks her which debt fund to buy | Yes | Child — consults her on trading decisions, even though not dependent |
On Tuesday 12 August her father-in-law buys Rs 3,50,000 of units of Meridian Balanced Advantage Fund. He must tell her, and Ms Desai must report the transaction to the AMC's compliance officer by Thursday 14 August — within two business days. The holding then feeds the aggregated disclosure the AMC makes on the exchange platform.
Her brother's purchase of Rs 9,00,000 of the same scheme the same week is reportable by nobody. He is outside the definition, so the transaction never enters Meridian's monitoring at all. The size of the trade is irrelevant; the relationship test is what decides.
Why NISM asks about it
Chapter 7 gives the Regulation 2(f) definition verbatim, and section 14.15 of Chapter 14 shows what it does on the fund side — the AMC code of conduct, the aggregated exchange disclosure, and the two business day reporting of transactions by designated persons, trustees and their immediate relatives.
The classic question gives a family member and asks whether they are an immediate relative. The answer is almost always "it depends on dependence or consultation" — except for the spouse, who always is. The reporting deadline of two business days is the other standard question.
Common exam traps
- Only the spouse is automatic. Parent, sibling and child qualify only on financial dependence or consultation on trading decisions.
- "Or of the spouse" pulls in in-laws. A father-in-law or sister-in-law can be an immediate relative; a candidate who reads only "parent, sibling and child" will get the in-law questions wrong.
- The two tests are alternatives, not cumulative. Financial dependence alone is enough. Consultation alone is enough.
- Immediate relative is not the same as "relative" under the Companies Act or the Income-tax Act. Those lists are longer and have no dependence test. Use the PIT definition in a PIT question.
- Two business days for reporting to the compliance officer, and the exchange disclosure of holdings is aggregated, not name by name. Candidates often reverse these.
- An immediate relative is deemed connected, which makes them an insider if they are in possession of UPSI — but the deeming is rebuttable.
Where this is taught
Free preparation for NISM Series III-ARelated terms
- Connected personA person whose association with a company in the six months before the act put them, or could reasonably be expected to put them, in a position to access unpublished price sensitive information.
- InsiderAnyone who is a connected person, or who simply possesses or has access to unpublished price sensitive information — possession alone is enough, with no relationship to the company required.
- Unpublished price sensitive informationInformation about a company or its securities that is not generally available and that would, on becoming available, be likely to materially affect the price of the security.
- Compliance OfficerThe separately appointed officer of a merchant banker, listed company or intermediary who monitors compliance with securities law, handles investor grievances, and reports non-compliance to SEBI independently.
- Deemed connected personsCategories of people the insider trading rules treat as connected automatically — relatives, group companies, trustees, bankers, auditors — unless the person proves the contrary.
- Designated personsThe people a listed company, intermediary or fiduciary formally names as subject to its insider trading code of conduct, chosen by the access their role gives to price sensitive information.
- Generally available informationInformation accessible to the public on a non-discriminatory basis — the opposite pole of unpublished price sensitive information, and expressly not including unverified media reports.
- Trading plans — regulation 5A pre-announced, irrevocable schedule of trades an insider files with the compliance officer, which may not begin for 120 calendar days and then executes without pre-clearance or trading window limits.
- Material financial relationshipA relationship where a person received payments such as loans or gifts from a designated person in the last 12 months worth at least 25% of that designated person's annual income, excluding arm's length deals.