How to recoup lost investment

India’s financial sector has witnessed tremendous growth. But in the midst of this progress lies the persistent challenge of unclaimed investments. Millions of rupees of money remain dormant in stocks, mutual funds, provident funds and other financial instruments for various reasons. Recovering these forgotten assets can be a complicated process, leaving many individuals and businesses at a loss. Hence, what is needed now is a system that ensures that the wealth of the common man is not forgotten.

But first, how big is this mountain of unclaimed investment?

That’s a mountain

Data from the Investor Education and Protection Fund (IEPF), the government body tasked with clearing unclaimed investments, paints a worrying picture: as of March 2023, shares worth more than Rs 25,000 crore remain unclaimed. The figure represents a significant loss of potential gains for investors and highlights the need for an effective recovery mechanism.

Why investments remain unclaimed

There are several factors behind the unclaimed investments in India.

Lack of awareness: Many investors, especially those new to financial markets, may not be aware of the importance of maintaining up-to-date contact information with companies and custodians.

Change of Address: If you move or change your correspondence address, you may not be able to contact us or receive dividend notices or account statements.

Non-operating accounts: Having dormant bank accounts or inactive demat accounts linked to your investments can result in your investments remaining unclaimed over time.

Death of the investor: Without a proper succession plan or failure to notify a nominee, an investment may remain unclaimed upon the investor’s death.

Physical share certificates: Despite the move to dematerialised accounts, many investors may still be holding old physical share certificates that they have not converted, resulting in unclaimed dividends.

Impacts and challenges

Unclaimed investments not only deprive their rightful owners of potential earnings, they also pose problems for the financial system: dormant accounts strain the resources of the firms that manage them, and unclaimed dividends reduce the efficiency of the entire market.

Unclaimed Investments by Category

While the total amount of unclaimed investments is large, a breakdown by category gives a better understanding of the issue.

Mutual funds: As of March 2023, mutual funds alone have unclaimed assets of over Rs 35,000 crore. [Source: Amfi]This can be attributed to factors such as investors forgetting to make small investments, terminating SIPs (System Investment Plans) without closing their accounts and not updating beneficiary details.

Also Read | Sebi eases access to unclaimed amounts for investors in three asset classes

insurance: The insurance industry is also facing unclaimed policies due to reasons such as policyholders not updating their addresses, lack of awareness about maturity benefits and lost policies. Though exact data is not available, industry estimates suggest that the amount of unclaimed life and endowment insurance claims is substantial. LIC of India has an outstanding outstanding of Rs 21,500 crore. [Source: LIC]Private insurance companies are also likely left with huge amounts of unclaimed insurance money.

Reserve Fund: Provident fund contributions deducted from salary can go unclaimed due to job change, migration or lack of proper claim filing after retirement. The Employees’ Provident Fund Organisation (EPFO) is actively working to address this issue through an online claim process and awareness campaigns. EPFO ​​has an estimated unclaimed amount of Rs 48,000 crore.

Bank deposits: Savings and ordinary deposits that have not been used for more than 10 years, and term deposits that have remained undrawn for a similar period after maturity, are categorised as unclaimed bank deposits.The Reserve Bank of India (RBI) estimates that unclaimed bank deposits in India are over Rs 62,000 crore. [Source: RBI website]This can happen when an account holder forgets about a dormant account, becomes unreachable due to a change of address, or fails to properly register a beneficiary.

Recovery Process

Recovering unclaimed investments can be a cumbersome and time-consuming process. Investors often face complex legal and paperwork procedures and must deal with multiple organizations. Limited awareness of the recovery process and a lack of readily available resources also hinder successful claims.

Also Read | RBI’s centralised portal makes it easier to find unclaimed bank deposits

Service Providers: A Ray of Hope

To address this persistent problem, several companies have sprung up. These companies specialize in unbilled investment recovery and offer a streamlined approach to individuals and businesses. Their services typically include:

Identifying Investments: Through various channels, we help clients identify potential unclaimed assets.

Document collection and verification: We guide clients in collecting the required documents and verifying their authenticity.

Claims Processing: Manages communications and liaison with companies and regulatory bodies on behalf of clients.

Contingency Fee Structure: These companies often operate a pay-for-performance model, charging a percentage of the recovery and acting as an incentive for success.

Looking ahead: technology and collaboration

Technology plays a key role in simplifying unclaimed investment recovery. Data analytics and artificial intelligence help identify dormant accounts and facilitate tracking of unclaimed assets.