In another case, financial planning firm Bajaj Capital contacted an avid mutual fund investor who had suddenly stopped investing some years back. They were shocked to know that the investor had died, but the family knew nothing about the investments he had made.
Such stories are common across the country. ET Wealth estimates that more than Rs 82,000 crore of investor wealth is lying unclaimed in forgotten and lost investments. There are unclaimed deposits languishing in dormant bank accounts, maturity proceeds of policies idling in insurance companies and even the life savings of individuals locked up in inactive provident fund accounts. There are also mutual fund investments that nobody is aware of and dividends that have not been encashed for years.
“Such situations can be avoided if investors keep their families in the loop when they make any financial investment,” says Vikash Jain, co-founder of Share Samadhan, a firm that helps investors or their legal heirs locate and get back lost and forgotten investments. They do all the paperwork and legwork in return for a fee.
The good news is that regulators have taken steps to make it easy for rightful owners to get their money back. The Insurance Regulatory and Development Authority of India (Irdai) has made it mandatory for all insurance companies to display information of unclaimed amounts if the sum is more than Rs 1,000. Sebi has made it mandatory for mutual fund houses to provide details of unclaimed investments on their websites. You can check if there is any unclaimed sum by just keying in the investor’s name and PAN. In the following pages, we tell you how to get back your forgotten and lost investments.
The unclaimed amount lying in banks is huge, but more than Rs 12,000 crore, or 66% of the total, is in 4.75 crore inoperative savings bank accounts. A bank account is classified as inoperative or dormant if there is no transaction for more than two years. It’s not a big deal and the account holder can restart the account by conducting a transaction.
If the owner has died, the nominee has to submit the death certificate of the account holder and proof of his identity. The bank will verify these, close the account and pay the balance to the nominee. But it gets complicated if the owner does not have a nominee. Small amounts below Rs 25,000 do not matter and are usually settled by the bank at the branch level. But if the amount is higher, the legal heirs, which include spouse, parents, children and siblings of the deceased, will have to approach a court and get a succession certificate. The bank will also demand an indemnity certificate in case some other claimant comes forward to claim the money.
Unclaimed bank accounts are a legacy of the pre-digital era when the banking infrastructure was not interlinked and everything was paper-based. Now, bank records are not only digital and easily accessible, but banks insist that the account holder has a nominee. This helps in transmitting the account balance to the legal heir in case the account holder dies.
Account-holders also have to provide a registered mobile phone number and email ID so that they can be contacted by the bank.
As things stand, the average balance in these savings accounts is less than Rs 2,600, which makes the effort unviable, considering the paperwork required and the legal hassles the whole procedure entails. In some cases, the cost of claiming the money maybe even higher than the balance in the account.
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 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.
If an account remains unclaimed for 10 years, the amount is transferred to the Depositor Education and Awareness Fund. According to RBI, the DEAF had about Rs 33,114 crore in its coffers as on 31 March 2020.
RBI has directed banks to disclose details of unclaimed accounts on their websites. Investors can check the details on the website. If there is an unclaimed amount, one can visit the bank branch with a duly filled claim form along with proof of identity and other documents to claim the money.
Claimant can search records based on the following details:
- Name and date of birth
- Name and PAN
- Name and passport number
- Name and pincode
- Name and telephone number.
The enormous unclaimed sum lying with life insurance companies is surprising. Life insurance is considered the bulwark of a financial plan and one would assume that a policyholder tells his family when he buys an insurance plan. Yet, the maturity proceeds of millions of policies are lying unclaimed with insurance companies, completely unknown to the people for whom this protection was bought.
The insurance regulator has made it mandatory for insurance companies to display details of unclaimed amounts on their websites if the amount exceeds Rs 1,000. One has to log on to an insurance company website and key in the policy number, PAN of the policyholder, name and date of birth of the policyholder to know the unclaimed amounts with the company. If the details match the company’s database, it will show the name and address of the policyholder who may have an unclaimed amount with the company.
The policyholder, his nominee or his legal heir can then approach the company for the amount. They will have to follow the same procedure as in the case of bank deposits, though it is easier here because a policy must necessarily have a nominee.
One question begs an answer: will a person who has no clue of any such policy bought by his parents or grandparents, ever check on the unclaimed money lying with an insurance company? Besides, the unclaimed amounts are not just maturity proceeds. They may even include surrender values of foreclosed policies or payments held up due to litigation. Many buyers tend to foreclose their policies after they realise that they can’t pay the premium for the full term.
According to the Association of Mutual Funds in India, the total unclaimed dividends and redemption amounts is Rs 1,100 crore. This is a gross underestimation. We have estimated that close to Rs 17,880 crore is lying in inactive folios that are forgotten by the investor or do not have any claimant. This is a conservative estimate and constitutes 1% of the total AUM held by retail investors.
Unlike bank fixed deposits and insurance policies that have a specific maturity date, open-ended mutual funds are for perpetuity. So, technically, a mutual fund can never ever become inoperative or dormant.
A few years ago, Sebi had introduced a rule that classified a folio as dormant if there was no transaction for more than six months. This dormant status was mentioned in the statement sent to the investor. The new rule created a storm, with investors feeling unnerved by the word dormant in their statements and distributors losing business. So the rule was dropped.
For the mutual fund industry, this helped in sweeping the problem of inactive and dormant folios under the carpet. If fund houses seriously want to identify unclaimed assets, they should look at folios that have not seen any transaction for the past 10 years, are not KYC compliant, have no nominees, where there is no registered phone number or email ID, and no electronic bank transfer mandate.
Sure, not all such folios can be classified as unclaimed, but folios that tick all the boxes are more likely to be forgotten and lost investments. ET Wealth reached out to three large fund houses and a mutual fund transfer agent for this information. However, none of them responded to our queries.
On its part, the industry puts forth a figure of Rs 1,100 crore of unclaimed dividends and redemptions. Many mutual fund investments date back to the era when there was no electronic bank transfers. “You gave post-dated cheques for SIPs and dividends and redemptions cheques were mailed to your postal address,” says Dhirendra Kumar, CEO of Value Research. Some cheques got misplaced in transit or some investors changed their addresses, leading to unclaimed dividends.
This problem has been fixed. A Sebi guideline says unclaimed redemption and dividends can be redeployed in liquid or overnight funds. So, if a cheque becomes stale, the fund house puts it back into a liquid fund in the same folio.
Though the problem of mutual fund dividends has been taken care of, the problem of unclaimed dividends from stocks is only growing. Two years ago, in March 2019, there was about Rs 2,000 crore lying with the Investor Education and Protection Fund Authority (IEPFA). Now, even though with more than 15,000 claims settled in the past two years, the unclaimed amount lying with IEPFA has increased to around Rs 4,100 crore.
The problem is rooted in shares held in the physical form or in demat accounts that are no longer linked to a bank account. As a result, the dividend on the holdings cannot be transferred to a bank account but paid to the investor through a cheque. But there are also cases where the investor may have died and his bank account closed. Address change is a common problem. Dividends not claimed for seven years are transferred to the IEPFA. Apart from dividends, the IEPF also has matured fixed deposits of non-banking companies and debentures.
One silver lining is a new rule under the Companies Act 2013 that allows investors to claim the dividend amount from the IEPFA. Under the old Companies Act, money that was unclaimed for a number of years was transferred to the government coffers. If no claimant ever showed up, the money belonged to the government. But investors can now claim it from the IEPFA by logging on to its website and filing claims.
It is another matter that the procedure and paperwork required is so daunting that many will not want to file the claim unless the amount is significantly large. The investor may have to spend a neat amount on the legal paperwork required. That is why companies like Share Samadhan charge for helping you get the lost and forgotten dividend from the company.
The largest cache of unclaimed money is lying with the Employees’ Provident Fund Organisation (EPFO). Before the EPFO made PF accounts portable, employees usually used to open a new account when changing jobs. As a result, many people have more than one PF account. Many of these employees may not be even aware that they have another account running in their name.
Provident Fund rules were changed in 2011, under which if the amount was not withdrawn within three years of the last contribution, the account became dormant and stopped earning interest. After seven years of remaining dormant, the money is transferred to the Senior Citizen Welfare Fund by EPFO. It can be claimed from the Senior Citizen Welfare Fund by the investor or his legal heirs within 25 years by furnishing the required proofs and documents.
EPFO has made it easy for subscribers to claim money in dormant accounts through the online channel. The subscriber should log in to the EPFO website and go to the Inoperative Helpdesk. Thereafter, he should fill in all details of the dormant EPF account and submit KYC details like Aadhaar number, PAN number, bank account number and IFSC code. The application will then be verified and processed.
If it is your own account and you are still employed, it is advisable not to withdraw the PF. The provident fund is a long term safety net and you should preferably transfer it to your existing account. Even though the EPFO has rolled out the Universal Account Number (UAN), you still need to transfer the money from the old account to your existing account.
In case the subscriber has died, his nominees will get the money in the percentage specified by him. However, there is a time limit here. A nominee or EPFO member can apply within 25 years of the amount going into the Senior Citizen Welfare Fund. After that, it will go to the government coffers.
If there is no nominee and the subscriber has died intestate or the PF is not mentioned in the will, the going will be very tough. His legal heirs will have to follow the same procedure as for other assets.
They must provide a succession certificate that names them as his successors. For this, one has to approach a court. The applicant may also have to provide a bond with sureties or securities to make up for any loss arising from the misuse of the certificate.
EPFO is now insisting on Aadhaar updation as well so that the identity of the subscriber cannot be misused to access the funds.
Tips to avoid unclaimed investments
- Keep family informed about finances
Made all the right investments and saved diligently throughout your life? It won’t help if you have not kept your family in the loop about your investments and insurance policies. The huge amounts of unclaimed wealth lying with banks and insurance companies is testimony to the fact that people miss out on this important detail. Not just your immediate family, but also a trusted person outside the family should be in the know about your finances so that if you are not there, they can help the family access your funds.
Whenever you make an investment, be sure to name a nominee. Without a nomination in financial records of the deceased, the legal heirs will have to undertake a long drawn and tedious process of proving themselves as legal heirs and executing indemnity bond. Many financial companies now insist on a nominee in investments. For instance, nomination is mandatory in mutual funds where the mode of holding is single. Fund houses now do not allow new folios without nomination.
Investing is important, but even more crucial is to guarantee that your inheritance is passed on smoothly to your heirs. Legal disputes that stretch for years could even reduce the value of your investment. The only way to ensure a fluid flow of your assets is to formulate an estate plan, no matter what your age or net worth. In fact, an estate plan is even more crucial if you have young children as you can name guardians or trustees who will take care of them. Clearly mention the assets you have and how you want to distribute them.
- Keep updating details whenever there is change
Update your details whenever there is a change. If your address has changed, or you have got married, make sure you update the details in your investments. These are critical because your family will not be able to access your money if their names and details have not been included in the