Discover Unclaimed Wealth: Shares and Dividends Owned By Your Ancestors

Humour me. Do this exercise. List the names of five people who participated in the share market in the 1980s or 1990s. Then go to the iepf.gov.in website and click on this link

Search those five names in the search box provided. (Note: Provide at least the first and last name. Do not get put off if the website is slow—just try again.) You will likely discover that at least one of those people had shares they had forgotten about or dividend cheques that they did not encash. In some cases, the amount could also run into a few lakhs.

The issue of unclaimed shares and dividends can be traced back to the IPO and stock market boom from the late 1980s till the mid-1990s. Many investors lost interest in the ensuing bear phase as many companies shut down or vanished, causing many investments to become worthless. However, shareholders who moved on or died without informing their successors also forgot investment in good companies (Infosys – 1993 & HDFC Bank – 1995). The uncashed dividend cheques from these companies piled up. First, these uncashed dividends were transferred to the government-run Investor Education & Protection Fund (IEPF). Finally, the shares on which these dividends had remained uncashed were also transferred to IEPF.

In theory, IEPF is supposed to refund these amounts to the original shareholders if a claim is made. However, the issue is that most shareholders had forgotten these then-tiny investments, which had grown to a very sizeable number over time (with bonuses and stock splits). Most of these shareholders were either dead or blissfully unaware that they were entitled to a treasure.

The process followed by IEPF was not conducive to returning this amount to the rightful shareholders or their legal heirs. Initially, no information was available for shareholders or their legal heirs to search whether they had entitlements to any such shares. Secondly, even where shareholders (or their heirs) somehow learned about such shares – the process prescribed by IEPF for claiming these assets is long, tedious, and complicated, putting off most investors (unless the amounts involved are large).

Value of unclaimed deposits

IEPF has not provided the market value of the listed shares it holds. Our firm (Fee-Only Investment Advisers LLP) compiled the value of listed shares held by IEPF in the top 1268 listed companies as per the shareholding pattern disclosed by these firms to the stock exchanges (as on December 31, 2023). The value of shares held by IEPF in these listed firms based on market price as of April 12, 2024, is Rs. 71,333 crores. (A detailed Excel sheet is available at this link.) Add dividends of Rs. 5,700 crores transferred to IEPF as disclosed in its annual report, and the size of the unclaimed listed shares plus unclaimed dividend becomes Rs. 77,033 crore. Remember, this 77,000 crore is just the value of listed shares and dividends. It doesn’t include the value of other products, such as debentures and such amounts related to unlisted shares.

I stumbled on this whole unclaimed asset discussion when assisting with the research for the White Paper – “Reimagining Nominations – Making Succession Smoother and Simpler” written by Mr. Pramod Rao, currently an executive director of SEBI (the paper was written in his individual capacity before he joined SEBI). The Association of Registered Investment Advisers (ARIA) – of which I am a board member – provided inputs for the white paper and published it. The WP carried a foreword by Mr K V Kamath and was released by him in September 2021.

The white paper points out that unclaimed amounts are not restricted to listed shares alone. Let me use this space to illustrate how this mountain of unclaimed assets has sprung up.

1) Bank accounts that have been inactive for 10 years or more amount to about Rs. 42,000 crore, which the banks have transferred to the Depositors Education and Awareness Fund (DEAF) maintained by the Reserve Bank of India.

2) Unclaimed insurance amounts amounting to Rs. 25,000 crore, unclaimed small savings, and Provident Fund amounts (sums not known) are similarly transferred to the Senior Citizen Welfare Fund by the Social Justice & Empowerment ministry.

3) The value of inactive plus unclaimed mutual funds is around Rs. 18,000 crore.

Transparent database 

Until recently, searching for unclaimed assets on IEPF required Investors to provide details of their unclaimed/uncashed amounts (such as folio number or the exact way in which their names were stored in the IEPF database) when they were unaware they had unclaimed shares lying with IEPF in the first place. This is a perfect example of the Catch-22 rule made famous by Joseph Heller. The rules state that a pilot can be excused for dangerous missions if deemed insane. However, requesting to be excused is considered proof of sanity, making the pilot ineligible for exemption. Requiring investors to provide details of unclaimed shares before providing information about them is a perfect example of the Catch-22 rule. While information is available publicly, it is not in a searchable format. The agents collate and clean this information and then use the now private database, which is easily searchable, to provide information for a fee. The onerous procedures for claiming the amounts have also encouraged agents who offer the service of getting a refund for a percentage of the wealth released.

Fortunately, IEPF has relented, and information about unclaimed shares is now available in a relatively transparent searchable database using the link mentioned earlier.

On the refund front, some changes have been proposed by the finance minister. Unfortunately, the consultation paper by IEPF in this regard is a rehash of the same old restrictive rules ostensibly designed to ward off fraudulent claims – but which are so tight that genuine claimants give up in frustration.

RBI recently unveiled UDGAM, a central search and refund facility. Unfortunately, the same Catch-22 rules prevent the discovery of unclaimed amounts; we cannot use the search just by giving names as input. So, its refund processes remain to be tested. The rules on searching for unclaimed/inactive mutual funds are reportedly set to change on the lines of IEPF, which would be an excellent move if implemented.

The Senior Citizens Welfare Fund (for unclaimed Insurance amounts/small savings & Provident Fund) does not have a search facility or a refund procedure. Hopefully, they will also develop a working search facility and a refund process.