Ten-nominee rule
The cap of ten nominees a demat account holder may name for a single-holding account, each given a percentage share of the securities that must together add up to 100 percent.
In plain language
The Companies Act lets a shareholder name only one nominee for physical holdings. The depository system is more generous. An investor holding securities in dematerialised form can name up to ten different people as nominees on the same account, not just one.
Each of those ten gets a slice, fixed as a percentage, of what the account holds. Whoever survives the account holder simply inherits according to that pre-set split.
How it works
From Chapter 6, sections 6.2 and 6.3.1: investors holding securities in dematerialised form may nominate up to 10 persons in the account — unlike the Companies Act, 2013, which provides for only one nominee for physical holdings. Nomination is mandatory for single holding, and optional for joint holding.
Where more than one nominee (up to 10) is named, the client must specify the percentage of share for each nominee, and the percentages must total 100 percent; if no percentage is provided, allocation among nominees is treated as equal. At transmission, the DP divides the securities at the ISIN level in the same proportion recorded at nomination. Non-individuals — a society, trust, body corporate or HUF — and POA holders cannot nominate; a minor can nominate through a guardian, and can also be appointed a nominee through a guardian.
A worked example
Mr Prabhu opens a single-holding demat account and names four nominees: his wife (40%), his son (30%), his daughter (20%) and his mother (10%) — the four percentages add up to exactly 100 percent, well within the cap of 10 nominees the depository allows.
On his death, his 800 shares of one ISIN are divided in that same 40:30:20:10 proportion — 320, 240, 160 and 80 shares respectively — among the four. Had Mr Prabhu instead simply listed all four names without specifying any percentages, the depository would treat all four as equal beneficiaries, giving each exactly 200 of the 800 shares regardless of what he might actually have intended.
Why NISM asks about it
Chapter 6, sections 6.2 and 6.3.1, set the nomination cap and its mechanics. Expect the cap of 10 (versus the Companies Act's single physical-holding nominee), the 100 percent total requirement, and the default-to-equal rule when percentages are not specified.
Common exam traps
- The depository's cap is 10 nominees; the Companies Act's own default for physical securities is only one — do not conflate the two regimes.
- Nomination percentages must total 100 percent; if none is stated, the workbook treats the split as equal, not void.
- Non-individuals and POA holders cannot nominate at all — only an individual account holder can.
Where this is taught
Free preparation for NISM Series VIRelated terms
- NominationThe account holder's written direction naming who receives the securities on death — up to ten nominees for a demat account, with percentages that must total 100, mandatory for single holdings.
- First holderThe first-named holder of a joint demat account: all communications, dividend and interest warrants, annual reports and meeting notices go to them, though beneficial ownership vests in all joint holders.
- Indivisible securities ruleWhen a nominated percentage split cannot be exactly divided at the ISIN level among multiple nominees, the DP divides what is divisible and gives the remaining indivisible securities to the nominee named first.