As market loses value, thousands of crores lost in forgotten investments
When mutual fund distributor Bajaj Capital found that a certain investor had not made any new investments in mutual funds for a long time, it decided to check up on him. To their surprise, the officials found that the investor had died a few years ago and his wife had no knowledge about the Rs 2 lakh he had invested in HDFC Mutual Fund.
"The amount had grown to Rs 9-10 lakh. The lady broke down because she was facing financial difficulties and the money would help her tide over the problems," says Surajit Misra, executive vice-president and national head of mutual funds, Bajaj Capital.
Ajay Kumar Parmar had forgotten all about the Saradar Sarovar Narmada Nigam bonds he had bought 20 years ago when he was living in Ranchi. It was only when he heard about another investor getting a good price for his bonds this year that he recalled his own investment. Not everyone is as lucky though. An estimated Rs 22,000 crore of investors' wealth is lying unclaimed with insurance companies, mutual funds, corporate houses, banks and the Employees' Provident Fund Organisation.
These are investments that were made but never claimed by the owners after maturity. "The investors who put small amounts in a number of instruments often face this problem because the portfolio becomes too unwieldy and difficult to monitor," says Sandeep Shanbhag, director at Wonderland Consultants Tax & Investment Advisory.
ET Wealth looked at the unclaimed wealth lying across various investment options. Insurance policies and long-term instruments top the list of most forgotten investments.
It's a problem that afflicts almost every investor. Every household will have a dormant bank account, or a long-forgotten insurance policy or expired dividend cheques. In the following pages we tell you how you can reclaim this money.
1) Life insurance policies
This is a major black hole when it comes to investor wealth. The life insurance industry has roughly Rs 1,724 crore unclaimed funds lying with it.
Private sector insurance companies, which started operations only 11 years ago, alone have more than Rs 1,500 crore worth of unclaimed benefits.
These include policy benefits paid out, but not encashed by, policyholders, maturity benefits lying unclaimed or death claims not filed by nominees. LIC, which has been doing business for the past six decades, stands at third place with Rs 218 crore.
The public-sector behemoth has some 1.8 lakh policies for which the maturity benefits have not been claimed. Besides, there are cases where the policyholders have died but the death benefit has not been claimed.
Companies say they hold the unclaimed funds for a long time. V Srinivasan, chief financial officer at Bharti AXA Life Insurance, says, "Irda regulations don't allow insurers to write off this money for a long time. Currently, long has not been defined." However, you won't get more than the due amount because it won't earn any interest. "We don't pay any interest because it would incentivise forgetfulness by investors," says Srinivasan.
It's best to file death claims as soon as possible. In case the policyholder dies, a delayed claim raises suspicion of foul play or fraud. The insurance company will then have to investigate the cause and circumstances of death. "It becomes a sticky issue. It's in everybody's interest to make the claim on time," adds Srinivasan.
To ensure that your investment in insurance is safe, be sure to inform your family members about all the policies and keep a record. The nominee will be able to claim the amount without any hassles. However, problems crop up when no nominee is listed in the insurance document or if he has not been informed.
2) Bank accounts and deposits
More than Rs 1,700 crore is languishing in dormant accounts and unclaimed bank deposits across India. The SBI and its associate banks alone have unclaimed deposits of Rs 279.7 crore. Concerned about this forgotten treasure trove, the Reserve Bank of India has asked banks to consider launching a special drive to locate the customers or legal heirs of inoperative accounts.
From 1 July this year, all banks will have to list on their websites the names and addresses of customers who have unclaimed deposits and inoperative accounts. The RBI is very clear about how banks should treat this money. The maturity proceeds of unclaimed FDs will earn the savings bank rate of interest. Similarly, the interest on savings bank accounts is to be credited on a regular basis whether the account is operative or not.
If you also have a forgotten fixed deposit, take heart. You can get your money back along with interest. Some banks even offer customers a higher interest than the savings bank rate. "If the investor wants to withdraw the maturity proceeds of the forgotten FD, he will get the savings bank rate from the time of maturity. However, if he agrees to reinvest the proceeds, he will get the applicable FD rate from that date," says Sunil Pant, chief general manager, financial control, State Bank of India.
This window is open till seven years of maturity. If the investor is not traceable during this period, the money goes into the unclaimed money account. Similarly, a savings account becomes inoperative if there is no activity for two years.
3) Stock investments and dividends
A Mumbai-based investor was pleasantly surprised recently to find out that the value of 500 shares of Diamond Power Trading company that he had bought at Rs 10 apiece in 1995 had grown 6,400% to Rs 3.25 lakh. Not all investing stories have such happy endings. There may be hundreds, even thousands, of investors, who don't know about the shares they have inherited. Others may have forgotten about the stocks they bought long ago.
The accidental discovery of shares made the above-mentioned investor forget about the dividends declared in the past. Companies send out dividend warrants (or cheques) to shareholders. If these are not encashed by the investor within 30 days, the money is transferred to another account. This is mentioned in the annual report as unclaimed dividend.
This account remains with the company for seven years, after which the money is transferred to the Investor Education and Protection Fund. So, if you have missed out on the dividends declared on your stocks a long time ago, there is hope of getting them back.
4) Income tax refunds
Though income tax refunds are now sent directly to your bank account, the Income Tax Department is continuing with the legacy of refund warrants in the physical form. The income tax staff is notorious for deliberately delaying the refunds so that they can squeeze some money out of the taxpayer.
It is important to note that the refund will not earn any interest after the cheque has been issued. If the cheque takes 1-2 years to reach you, and you spend another 2-3 months to get it revalidated, you will lose out on the interest earned during the period. "You don't get the interest for the delay if you don't follow it persistently," says Sunil Talati, former president of the Institute of Chartered Accountants of India.
Refunds are quicker if you e-file your returns. You get your refund within 45-60 days. If you haven't already received your refund, write to the Bangalore Central Processing Centre. "If your request goes unheard at the Bangalore CPC, you can approach the assessing officer. If that doesn't help, take up the matter with the grievance cell or the income tax oOmbudsman's office," adds Talati.
5) Mutual fund investments
The mutual fund landscape has changed drastically in the past 10 years. New fund houses have come in, older ones have been merged and some have even closed shop. The Canbank Mutual Fund, for instance, is now called the Canara Robeco Mutual Fund. ABN Amro Mutual Fund became Fortis Mutual Fund in 2008 and was bought by the BNP Paribas Mutual Fund in 2010. Even individual schemes get merged or change names.
Investors need to keep track of these changes so that their money isn't lost in the maze of new names. Make sure your address, contact details and bank account numbers are correctly notified to the new fund house. "There are many investors who are still holding units of the Alliance New Millennium Fund bought in 1999 at Rs 10," says Misra of Bajaj Capital.
If you don't remember your mutual fund investments, you would also not have any inkling of the dividends paid on these investments. Mutual funds have almost Rs 340 crore of unpaid dividends and Rs 113 crore of unclaimed funds lying with them. "Dividend cheques go unnoticed due to changes in address or bank account details. There was no system of ECS in the early 1990s when many schemes were launched," says Misra.
Mutual funds keep the unclaimed dividend for three months. After the dividend cheque becomes stale, the funds are redeployed in the money market. "The fund house can recover fund management charges of up to 0.5% a year on the dividend amount when the claimant finally withdraws the money," says Shanbhag.
6) Provident Fund
Every time you change a job, you have the option to either withdraw the provident fund balance or transfer it to the account with the new employer. Many people opt for the third option-not do anything about the PF account with the previous employer because the money will continue to grow. However, it is high time you got the money transferred to the new account otherwise you stand to miss out on interest.
A new rule that came into effect on 1 April 2011 says that no interest will be paid on PF accounts in which there is no deposit for 36 consecutive months. The EPFO estimates that there is roughly Rs 16,000 crore lying in such dormant accounts. It believes this new rule will jolt PF subscribers into action and make them consolidate their two or three PF accounts into one.
7) Post office investments
Post office deposits are another major problem area. The quantum of investment may not be too large because these are generally for small investors, but the sheer number of such forgotten investments with the post office make it a big sum.
The post office, however, is not lenient to the Rip Van Winkles in the investor community. If the interest payable every month on the postal time deposit, recurring deposit and monthly income schemes is not claimed by the depositor, the interest will not earn any additional interest. Also, the total maturity amount will earn interest only for two years.
This will be simple interest and paid depending on the savings bank account rate. A period of less than one month will be ignored. You will be given this interest at the time of repayment and it shall not be deposited in the account.
The strict rules apply even to the Senior Citizens' Savings Scheme (SCSS). If the quarterly interest paid on the SCSS is not withdrawn by the depositor, the interest will not earn additional interest. The corpus too will invite the interest rate applicable to savings bank account if not withdrawn on maturity.
8) Bonds
You can fault an investor if he forgets the fixed deposit he made 2-3 years ago. Can you blame him if the investment was for 15-20 years? Long-term bonds, which typically have terms of 10-20 years, often end up in the unclaimed basket.
These long-term bonds can be RBI Relief Bonds, government securities, corporate debentures and the Nabard Bhavishya Nirman Bonds.
In 10-20 years, the investor may have changed his address or bank and any notification from the issuing company may not reach him. The problem multiplies if you lose the certificate. Before demat became the norm, all bonds were issued in the physical form as certificates.
While unclaimed mutual fund dividends, tax refunds and even bank fixed deposits earn interest for you even after maturity, the bond issuer can refuse to pay more than the maturity amount. "Technically, under bonds, no interest beyond the maturity period is payable. However, for the IDBI bonds we paid the savings bank interest rate for the period beyond maturity," says RK Bansal, executive director, IDBI Bank.
As in the case of stock dividends, the 7-year time limit is applicable to bonds. After this period, the money is transferred to the Investor Education and Protection Fund. If you approach the company after seven years, it may still get your money back but it will prove to be a time-consuming affair.
How to avoid this situation
Follow these tips to ensure that your investments don't go unclaimed.
Note it down: Make a file where you note the details of all your investments. Pen down all relevant folio and account numbers.
Keep family in loop: Inform your spouse and other family members about all financial transactions. In this way, you ensure that even if something happens to you, your family will be able to access your investments.
Assign a nominee: Mention a nominee in all financial investments. This ensures that the funds are transferred to the nominee without any hassle.
Remind yourself: Set up reminders for premium payments and maturity dates of investments. This can be done through various websites, your PC and even through mobile phones.
Go for ECS: Give ECS mandates for direct credit of dividends, interest payments and maturity proceeds into your bank account.
End the clutter: Close down bank accounts you don't use, transfer PF to the new employer and avoid having too many mutual funds and insurance policies. The fewer the investments, the easier they are to track.
