When a fund house’s flagship equity plan celebrated its 25th anniversary, it wrote to investors who had stayed involved in the programme for more than two decades. However, the congratulatory message resulted in an entirely unanticipated conclusion. Many long-term investors issued puzzling redemption requests during the next few weeks. “Many of those investors or their legal heirs may have been unaware of the transactions made years ago. They must have recalled and chosen to withdraw these monies when they received the notice from the fund house,” says a financial expert.
In another incident, the financial planning firm Bajaj Capital called a long-time mutual fund client who had abruptly stopped investing a few years ago. They were startled to learn that the investor had died, but they had no knowledge of the investments he had made.
Unclaimed Investors Wealth Overview
Such events are widespread throughout the country. According to ET Money, more than Rs 82,000 crore of investor wealth remains unclaimed in forgotten and abandoned investments. There are unclaimed deposits in dormant bank accounts, maturity proceeds of policies sitting in insurance firms, and even people’ life savings locked away in dormant provident fund accounts. There are also mutual fund investments that no one knows about, as well as dividends that have not been cashed in years.
“Such scenarios may be prevented if investors keep their family informed whenever they make a financial investment,”
A business that assists investors or their legal successors in locating and recovering lost or forgotten money. In exchange for a fee, they handle all of the paperwork and legwork.
The quantity of unclaimed money in banks is enormous, but more than Rs 12,000 crore, or 66 per cent of the total, is in 4.75 crore inactive savings bank accounts according to ET Money. If there has been no activity on a bank account for more than two years, it is categorised as inactive or dormant. It’s not a major problem, and the account holder may reactivate it by making a transaction.
If the owner has died, the nominee must present the account holder’s death certificate as well as confirmation of his identification. The bank will authenticate these, terminate the account, and pay any remaining money to the nominee. However, if the owner does not have a nominee, things become more difficult. Small sums less than Rs 25,000 are unimportant and are generally handled at the branch level by the bank. However, if the sum is more, the deceased’s legal heirs, which include the deceased’s spouse, parents, children, and siblings, will have to approach a court and get a succession certificate. In the event that another claimant comes forward to claim the money, the bank will also require an indemnification certificate.
Unclaimed bank accounts are a relic of a time when the banking infrastructure was not interconnected and everything was done on paper. Bank records are now not only digital and easily accessible, but banks also require the account holder to have a nominee. This aids in the transmission of the account balance to the legal successor in the event that the account holder dies.
Account-holders must also give a registered mobile phone number and email address so that the bank may reach them.
As things stand, the average amount in these savings accounts is less than Rs 2,600, rendering the endeavour unviable given the paperwork and legal complexities involved. In some circumstances, the cost of claiming the money may be greater than the account amount.
But the Rs 1,600 crore lying in 16.9 lakh fixed deposits is another story altogether. The investors obviously did not intend to keep them with the bank forever. Yet, this is what these investments have become. Worse, many of these deposits would no longer be earning any interest. Deposits with the auto-renewal option automatically get extended on maturity at the prevailing rate of interest. But if the investor had not opted for auto-renewal, the deposit stops earning interest after it matures.
SEBI’s Gift to the investors
The good news is that regulators have made efforts to make it easier for legitimate owners to recover their funds. The Insurance Regulatory and Development Authority of India (Irdai) has made it necessary for all insurance firms to publish unclaimed amount information if the value is greater than Rs 1,000. Sebi has mandated that mutual fund firms provide information about unclaimed assets on their websites. Simply enter the investor’s name and PAN to see whether there is any unclaimed money. In this article, we will explain how to recover your forgotten and lost investments.
If an account is left unclaimed for ten years, the funds are transferred to the Depositor Education and Awareness Fund. According to the RBI, the DEAF has around Rs 33,114 crore in its coffers as of March 31, 2020.
The RBI has instructed banks to provide information on unclaimed accounts on their websites. Investors can review the information on the website. If there is an unclaimed sum, the person can go to the bank branch with a properly completed claim form, proof of identity, and other papers to claim the money.
Desired Documents to Claim Unpaid Funds
The claimant can search for records using the following criteria:
- Name and date of birth
- Name and PAN
- Name and passport number
- Name and Pincode
- Name and telephone number.
Unclaimed Funds in Insurance Sector
Surprisingly, there is a large unclaimed sum with life insurance providers. Life insurance is regarded as the foundation of a financial strategy, and one would expect that when a policyholder purchases an insurance policy, he informs his family. Despite this, the maturity proceeds of millions of policies are sitting unclaimed with insurance firms, entirely unknown to the consumers who purchased this protection.
If the sum surpasses Rs 1,000, the insurance regulator has made it necessary for insurance firms to post details about unclaimed money on their websites. To learn about unclaimed sums with an insurance provider, go to their website and enter the policy number, PAN of the policyholder, name, and date of birth of the policyholder. If the information matches those in the firm’s database, the name and address of the policyholder who may have an unclaimed amount with the company will be displayed.
The insured, his nominee, or his legal heir might then seek payment from the business. They must follow the same method as bank deposits, however, it is easier in this instance because a policy must always have a nominee.
Will a person who has no knowledge of any such policy purchased by his parents or grandparents ever check on the unclaimed money sitting with an insurance company? Furthermore, the unclaimed sums are not just maturity profits. They might also include the surrender values of foreclosed policies or payments that have been delayed owing to litigation. Many policyholders abandon their policies when they realise they will be unable to pay the payment for the whole term.
Underlying Sum in Mutual Funds
The entire amount of unclaimed dividends and redemption sums is Rs 1,100 crore, according to the Association of Mutual Funds in India. This is a significant underestimate. We believe that over Rs 17,880 crore is sitting in dormant folios that have been ignored by the investor or have no claims. This is a conservative estimate that represents 1% of the total AUM held by retail investors.
In contrast to bank fixed deposits and insurance policies, which have a set maturity date, open-ended mutual funds are perpetual. In theory, a mutual fund can never become inactive or dormant.
Sebi adopted a regulation a few years ago that categorised a folio as inactive if there was no transaction for more than six months. This inactive condition was noted in the investor statement. The new regulation caused a commotion, with investors alarmed by the word “dormant” in their statements and distributors losing business as a result. As a result, the rule was repealed.
This aided the mutual fund industry in brushing the issue of inactive and dormant folios under the rug. If fund firms are serious about identifying unclaimed assets, they should look at folios that haven’t had a transaction in the last ten years, aren’t KYC compliant, don’t have nominees, don’t have a registered phone number or email ID, and don’t have an electronic bank transfer mandate.
True, not all of these folios are unclaimed, but folios that check all of the boxes are more likely to be forgotten and lost investments.
The sector, on its part, claims Rs 1,100 crore in unclaimed dividends and redemptions. Many mutual fund investments trace back to a time when computerised bank transfers were not available. “You provided post-dated cheques for SIPs and dividends, and redemption cheques were addressed to your postal address,” Dhirendra Kumar, CEO of Value Research, explains. Some checks were lost in transit, and some investors’ addresses changed, resulting in unclaimed payouts.
- This issue has been resolved. According to a Sebi directive, unclaimed redemption and dividends might be redeployed in liquid or overnight funds. So, if a check turns stale, the fund company reinvests it in a liquid fund within the same folio.
- Though the issue of unclaimed mutual fund dividends has been resolved, the issue of unclaimed stock dividends is only becoming worse. Two years ago, in March 2019, the Investor Education and Protection Fund Authority had around Rs 2,000 crore (IEPFA). Despite the fact that over 15,000 claims have been resolved in the last two years, the unclaimed sum at IEPFA has risen to about Rs 4,100 crore as per ET Money.
- The issue stems from physical shares or demat accounts that are no longer connected to a bank account. As a result, the dividend on the assets cannot be moved to a bank account but must be paid to the investor by check. However, there are situations where the investor has died and his bank account has been cancelled. Address changes are a typical issue. Dividends that have not been claimed in seven years are transferred to the IEPFA. Aside from dividends, the IEPF holds matured non-banking company fixed deposits and debentures.
One bright spot is a new provision in the Companies Act 2013 that permits investors to collect the dividend amount from the IEPFA. Money that went unclaimed for a number of years was transferred to the government coffers under the old Companies Act. If no claimant ever showed up, the money became the property of the government. However, investors may now claim it from the IEPFA by visiting its website and submitting a claim.
Another issue is that the method and documentation necessary are so intimidating that many people will not submit a claim unless the sum is considerably high. The investor may have to pay a significant amount of money on the necessary legal papers. That is why businesses such as MUDS Management provides expert service to assist you in obtaining the company’s lost and forgotten dividend.
THE EPFO TALE OF UNPAID FUNDS
The Employees’ Provident Fund Organisation has the greatest stash of unclaimed money (EPFO). Before the EPFO made PF accounts transferable, employees had to create a new account if they changed employment. As a result, a large number of people have several PF accounts. Many of these employees may be unaware that another account has been opened in their name.
In 2011, the regulations of the Provident Fund were amended such that if the money was not withdrawn within three years of the previous payment, the account became inactive and stopped generating interest. EPFO transfers the money to the Senior Citizen Welfare Fund once it has been inactive for seven years. The investor or his legal successors can collect money from the Senior Citizen Welfare Fund within 25 years by providing the necessary proofs and documentation.
Claim Your Money From EPFO
- EPFO has made it simple for users to claim money from inactive accounts using the internet channel.
- Log on to the EPFO website and navigate to the Inoperative Helpdesk.
- Following that, he should fill out all of the data of the inactive EPF account and provide KYC information such as
- the Aadhaar number,
- PAN number,
- bank account number, and
- IFSC code.
- After that, the application will be validated and processed.
ACCESS YOUR PF IN THESE SITUATIONS
It’s advisable not to withdraw the PF if it’s your personal account and you’re still working. The provident fund is a long-term safety net that should be transferred to your existing account if feasible. Even though the EPFO has adopted the Universal Account Number (UAN), you must still move funds from your old to new accounts.
If the subscriber dies, his nominees will get the money in the percentage he selected. However, there is a time restriction in this case. Within 25 years of the money flowing into the Senior Citizen Welfare Fund, a nominee or EPFO member can apply. Following that, it will be directed to the government’s coffers.
If there is no nominee, the subscriber died intestate, or the PF is not mentioned in the will, the situation would be extremely difficult. His legal heirs will have to go through the same process as with other assets.
They must produce a succession certificate designating them as his heirs. One must seek a court for this. The applicant may also be required to post a bond with sureties or securities to cover any losses incurred as a result of the certificate’s abuse.
EPFO is now pushing for an Aadhaar update as well so that the subscriber’s identity cannot be utilised to get access to money.
Why do the nominees have to be alerted?
According to a recent analysis, there is a corpus of over Rs. 82,000 crore in unclaimed deposits in India. This is a cautious estimate that incorporates the following items:
- Unclaimed Provident Fund Accounts: Rs. 26,497 Cr.
- Unclaimed Bank Accounts: Rs. 18,381 Cr.
- Rs. 17,880 Cr. in Inactive Mutual Fund Accounts
- Unclaimed Life Insurance Policies – Rs. 15,167 Cr.
- Maturity Fixed Deposits – Rs. 4,820 Cr.
- Unclaimed Dividends: Rs. 4,100 Cr.
“These are unclaimed, most likely because the nominees are unaware of their existence.
-SHWETA GUPTA, MUDS MANAGEMENT
Sebi permits AMCs to provide rapid access in night MF schemes.
In addition, the regulator has made changes to the framework for the handling of unclaimed redemption and dividend sums.
The markets regulator Sebi permitted asset management firms to give rapid access to overnight mutual fund schemes on Friday. Previously, Asset Management Companies (AMCs) could only offer such a service in liquid schemes.
The Instant Access Facility (IAF) allows the investor’s redemption funds to be credited to his or her bank account on the same day the redemption request is made. Sebi stated in a circular that “MFs/AMCs can provide Instant Access Facility (IAF) exclusively in the MF’s overnight and liquid schemes.”
The framework has also been modified by the regulator in terms of how unclaimed redemption and dividend monies are treated.
According to Sebi, unredeemed liberation and dividend amounts that are legally permitted to be deployed only in call money market or money market instruments can also choose to invest in an alternative way by overnight, liquid, and money market mutual fund plans floated by mutual funds especially for the deployment of the unrecovered sums.
This is subject to the condition that the unclaimed redemption and dividend sums be exclusively invested in overnight, liquid, and money market mutual fund schemes in the A-1 cell of the possible risk class matrix (relatively low-interest rate risk and relatively low credit risk).
According to the regulator, the framework for IAF will take effect immediately, while those for unclaimed redemption and dividend monies would take effect on December 1.
Overnight funds are debt funds that invest in overnight assets, or securities with a one-day residual maturity. CBLOs (Collateralised Borrowing and Lending Obligations), overnight reverse repos, and other debt or money market instruments with a one-day maturity are all investments in such funds.
A liquid mutual fund is a debt fund that invests in fixed-income assets with maturities of up to 91 days, such as commercial paper, government securities, and treasury bills.
HOW TO AVOID RISKS OF UNCLAIMED INVESTMENTS
Maintain financial transparency with your family.
Have you made all of the proper investments and saved diligently your whole life? It won’t assist if you haven’t informed your family about your money and insurance plans. The vast quantities of unclaimed cash held by banks and insurance firms attest to the reality that individuals overlook this crucial information. Not only should your immediate family be aware of your financial situation, but so should a trusted individual outside the family, so that if you are not present, they can assist the family in accessing your assets.
Always have a nominee standing side.
Make careful to identify a nominee whenever you make an investment. Without a nomination in the deceased’s financial records, the legal heirs will have to go through a lengthy and time-consuming procedure of establishing their legal heirship and completing an indemnity bond. Many financial institutions now require a nominee in investments. For example, in mutual funds with a single manner of ownership, the nomination is required. Fund houses will no longer accept new folios without nomination.
Finalise Your will today
Investing is essential, but so is ensuring that your legacy is passed on easily to your descendants. Legal wranglings that go for years may potentially diminish the value of your investment. No of your age or net worth, the best way to ensure the smooth transfer of your assets is to create an estate plan. In fact, having an estate plan is even more important if you have small children since you can appoint guardians or trustees to care for them. Mention your assets and how you want to divide them.
Keep details up to date if there is a change
When there is a change, be sure to update your information. If your residence has changed, or if you have married, be sure to update the information in your investments. These are essential since your relatives will be unable to access your funds if their names and contact information are not given.