Unclaimed assets: Create searchable databases

Over Rs 1.5 trn can be unlocked and put to productive use if unclaimed assets are restored to their rightful owners

This New Year you have a unique opportunity to bring joy to your circle. Create a list of 20 acquaintances born before 1970. Visit iepf.gov.in, click on “Search unpaid/unclaimed amount” under the “Services” tab, and enter their names in the search box. Voilà, you may discover unclaimed shares or dividends in their names, transferred to the Investor Education & Protection Fund (IEPF). The value of these forgotten investments can at times run into several lakh.

Shares with dividends unpaid for seven years or more get transferred to the IEPF. IEPF currently holds about Rs 47,000 crore in shares and Rs 5,200 crore in dividends, forgotten by their original owners.
 

Until recently, searching for unclaimed assets on IEPF required investors to provide details of their unclaim-ed/unpaid amount (such as folio number), when they were often unaware they had unclaimed shares lying with IEPF.  

This is a perfect example of the Catch-22 rule made famous by Joseph Heller. The rule states that a pilot can be excused from flying dangerous missions if deemed insane. However, the act of 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. It has fuelled the business of agents who offer the service of getting the refund for a percentage of the wealth released.
 

The current situation, rather than hindering their activities, has provided a fillip to them. While information is available publicly, it is not in an easily searchable format. The agents collate and clean this information and then use the now-private database, which is easily searchable, to provide the information for a fee. The onerous procedures for claiming the refund have also encouraged agents.
 

The finance minister in her budget speech this year had announced the setting up of an integrated portal to allow investors to claim unclaimed shares/dividends with ease. 
 

As a first step, the IEPF portal now displays potential matches on just entering the investor’s name, eliminating the need for additional details.
 

Large unclaimed amounts permeate the entire financial sector. Inactive bank accounts that have not been operational for 10 years or more, amounting to Rs 35,000 crore, have been transferred to the Depositors Education & Awareness Fund (DEAF) maintained by the Reserve Bank of India (RBI). The central portal Udgam has similar Catch-22 rules to provide information on these inactive accounts. Unclaimed insurance amounts outstanding for more than 10 years (Rs 25,000 crore) and unclaimed small savings and provident fund amounts (sum not known) are similarly transferred to the Senior Citizen Welfare Fund run by the Social Justice & Empowerment Ministry. There seems to be no portal where details on these unclaimed amounts can be searched. The value of inactive/unclaimed mutual funds is around Rs 18,000 crore. The MFCentral  portal that provides information on this has similar Catch-22 rules.
 

The six-member expert committee constituted by the Supreme Court of India (headed by Retd. Justice Sapre) in the Adani matter called for the establishment of a statutory central authority empowered by appropriate legislation to track the rightful owners, resolve grievances, and deal with security and privacy concerns to sort out the unclaimed assets issue.
 

Truth be told, more than Rs 1.5 trillion can be unlocked and put to productive use if unclaimed assets are restored to their rightful owners. Creating searchable databases and simplifying the refund process with adequate safeguards will unleash a lot of goodwill from middle-class investors.
 

The government has shown determination and resolve by creating population-scale digital infrastructure such as Aadhaar, UPI, Account Aggregator, and ONDC in record time. Unclaimed assets are one area in which India lags global standards.

Hopefully, we will see steps in this direction soon, especially as the infrastructure can be built with investors’ own funds. That will be the best gift to investors in 2024. Until it happens, you can continue to surprise your loved ones by apprising them of their lost treasure.  

The writer heads Fee-Only Investment Advisors LLP, a Sebi-registered investment advisor; X (formerly Twitter): @harshroongta