do you know more than 5,000 crore is lying with the Investor Education and Protection Fund (IEPF) in the form of 1.16 billion unclaimed shares apart from unclaimed dividend on shares and interest on bonds and debentures. These could have been left behind by your parents and grandparents.
There are many investors who have invested in shares/bonds/debentures of various companies but have not claimed. This could be due to a number of reasons – missing or damaged physical share certificate, change of address, death of the primary holder, no information to the heirs, non-updation of bank details, etc. Such amounts—dividends, application money, matured deposits/debentures—which have not been claimed by investors for seven years are transferred to the IEPF. Thus, investors need to approach IEPF Authority (IEPFA) to claim their rightfully owned money/shares.
India set up IEPFA in 2016 to facilitate buyback of shares; unclaimed dividends, matured deposits/debentures; Share the application amount to the investors. However, the refund rate is very low at 1.8% or only 21.8 million shares. The main reason for the low refund rate is the lack of awareness among the shareholders.
Investors can claim refund of such securities/amount from IEPF by submitting an application on IEPF website (www.iepf.gov.in, In case of death of the investor, such application can be made by the investor or the legal heir. The application filed by the claimant is transferred to the nodal officer of the company who submits the verification report of the claimant to the IEPFA. Thereafter, the claims for refund are processed by IEPFA. However, the major challenge in the reclaim process lies in identifying the rightful owner.
The problem of unclaimed shares is mainly due to the ownership of physical shares piled up. According to IEPFA, in more than 50% cases, the claimant has lost the original share certificate/dividend warrant/bond/debenture certificate, etc., or there has been a change in name. Thus, there is an issue of establishing eligibility as these claims pertain to securities issued prior to the demat era and are not KYC (Know Your Customer) compliant.
Many investors still hold physical share certificates. Investors must realize that it is important to dematerialize their shares, otherwise, they may meet the same fate as 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 made KYC mandatory for all investors and submission of these details to the company or the Registrar and Transfer Agent (RTA). If such details are not provided by April 1, the RTA will freeze the folios. After December 31, 2025, these frozen folios will be forwarded by the RTA/listed company to the Administration Authority under the Benami Transactions (Prohibition) Act, 1988 and/or the Prevention of Money Laundering Act, 2002. Further, these frozen folios (without PAN, KYC and nomination) will not be eligible for any payment including dividend, interest or redemption payments.
Thus, investors can overcome these issues by ensuring that they have dematerialized holdings, an updated KYC and a nominee. This will help the investors to ensure that their securities, its dividends etc. are with the rightful owner and do not fall into wrong hands even after their death.
Also, simplification of the cumbersome transfer/transmission process for IEPFA is the need of the hour. Perhaps IEPFA can borrow some best practices from SEBI which has prescribed different types of documents for transmission of securities which are above/below the prescribed amount. Even the recent budget announcement to enable easy recovery of unclaimed shares and dividends is praiseworthy.
Rasmeet Kohli is working with National Institute of Securities Markets. The views expressed here are personal.
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