There are times when mutual fund (MF) investors fail to claim their dividend or even redemption proceeds. For instance, if the address of the investor changes, the cheque is not delivered. Typically, these cheques come back to the fund house. Sometimes investors collect the cheques but forget to encash them. Fund houses estimate that unclaimed redemption is one-tenth of the total pie; the significant chunk is dividend that is not claimed or encashed on time.
The six-month waiting game
Since a cheque is valid for six months, the investor can claim the amount during this time. Many investors choose to receive their dividends and redemption proceeds by electronic clearing system (ECS). But if they, too, change their bank account without informing the fund house, the amount goes back to the fund house. Therefore, the fund house sits quiet for a period of six months.
Investing unclaimed funds
Once the six-month period expires, the cheque sent to the investor becomes invalid. As per the Securities and Exchange Board of India’s (Sebi) rules, the fund house is supposed to invest this money in money-market instruments and manage and monitor it. For this, Sebi has allowed fund houses to charge up to 50 basis points of the unclaimed amount. If an investor comes forth to claim his share of dividends or redemption proceeds, the fund house has to return him the amount as well as the appreciation earned during this tenor.
Investor education fund
After three years, the amount continues to be managed in a similar way, except that Sebi has allowed fund houses to utilize the gains (earned after the initial six-month plus the three-year period gets over) for investor education; a separate fund in which such gains can be transferred. Investors who wish to claim their dividends any time after the completion of this three-year period will get their principal (original unclaimed amount) plus gains earned in three years.
What should you do?
Though MFs send you reminders of unclaimed amounts through your email or through physical letters at least once a year, it’s always a good practice to claim your dividends on time. Earlier, when the ECS facility was not in existence, unclaimed dividends and redemption proceeds used to run into crores because physical warrants could get lost in post, or not encashed in time. We suggest you make use of the ECS facility and get dividends and redemption proceeds directly credited in your bank account. But when you change your bank account, do intimate your fund house.