Did you know that more than ₹5,000 crore is lying with the Investor Education and Protection Fund (IEPF) in the form of unclaimed dividends on shares and interest on bonds and debentures, besides 1.16 billion unclaimed shares. These could have been left behind by your parents and grandparents.
There are many investors who have invested in shares/bonds/debentures of different companies but not claimed them. This could be due to multiple reasons—misplaced or damaged physical share certificates, a change in address, death of the primary holder with no information to inheritors, non-updation of bank details, etc. Such amounts—dividends, application money, matured deposits/ debentures —that are unclaimed by investors for seven years are transferred to the IEPF. Thus, investors need to approach the IEPF Authority (IEPFA) to claim their rightfully owned money/shares.
Government of India'established the IEPFA in 2016 to facilitate refund of shares; unclaimed dividends, matured deposits/debentures; share application money to investors. However, the refund rate is abysmally low at 1.8% or only 21.8 million shares. Lack of awareness of shareholders is the main reason for the low refund rate.
Investors can claim such securities/refunds of amounts from IEPF by submitting an application on the IEPF website (www.iepf.gov.in). Such an application can be made by an investor or legal heir in case the investor has died. The application filed by the claimant is transferred to the nodal officer of the company which furnishes a verification report of the claimant to the IEPFA. Thereafter, the claims are processed by the IEPFA for refund. However, the major challenge in the reclaim process lies in establishing the rightful owner.
The problem of unclaimed shares has piled up primarily due to ownership of physical shares. As per the IEPFA, in more than 50% of cases, the claimant has lost the original share certificate/dividend warrants/bond/ debenture certificate, etc., or there is change in name . Thus, there is an issue of establishment of entitlement as these claims pertain to securities issued prior to the demat era and are not KYC (know your customer) compliant.
Several investors still hold physical share certificates. Investors should realise that it is important to get their shares dematerialized, else, they could meet the fate similar to those investors whose unclaimed securities are lying with the IEPF. In fact, it could be worse! This is because, in November 2021, the Securities and Exchange Board of India (Sebi) has mandated KYC for all investors and submission of these details to the Company or Registrar and Transfer Agent (RTA). If such details are not made available by 1 April, then the RTA will freeze the folios. After 31 December 2025, these frozen folios will be referred by the RTA /listed company to the administering authority under the Benami Transactions (Prohibitions) Act, 1988 and/or Prevention of Money Laundering Act, 2002. Further, these frozen folios (without PAN, KYC and nomination) shall not be eligible for any payment including dividend, interest or redemption payment.
Thus, the investors can overcome these issues by ensuring that they have dematerialized holdings, an updated KYC, and a nominee. This would help the investors ensure that their securities, its dividends, etc., are held by the right owner and do not fall in the wrong hands even after their death.
At the same time, simplification of the cumbersome transfer/transmission process at IEPFA’s end is the need of the hour. Perhaps the IEPFA can borrow some best practices from Sebi which has laid down different kinds of documentation for transmission of securities which are above/below a stipulated amount. Even the recent budget announcement to enable easier reclaim of unclaimed shares and dividends is laudable.
Rasmeet Kohli is working with National Institute of Securities Markets. The views expressed here are personal.
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