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Unclaimed deposits and investments are a growing concern in India, with a staggering amount of money remaining idle in financial institutions. As of 2023, nearly ₹2 lakh crore is unclaimed across banks, insurance companies, and other financial bodies. This figure is expected to increase by 16% annually reaching a level of ₹4.2 lakh crore, according to projections by the Reserve Bank of India (RBI). The aftermath of the COVID-19 pandemic is anticipated to exacerbate this issue, potentially raising the amount of unclaimed funds to 12 times its current level. This problem not only highlights inefficiencies within the financial management system but also underscores the need for improved financial inclusion and asset recovery measures.
Why Do Funds Go Unclaimed?
1. Lack of Awareness – Many people are unaware of their unclaimed assets due to several reasons:
- Insufficient Information: Financial institutions often do not provide adequate information about unclaimed funds. Individuals may not receive notifications if their contact details are outdated or if the communication is unclear.
- Complex Financial Products: Financial products such as insurance policies, mutual funds, and fixed deposits can be intricate, making it difficult for individuals to keep track of their holdings or understand their rights regarding unclaimed assets.
- Neglect of Small Balances: Small amounts of unclaimed money are often overlooked. People might not consider small balances worth claiming, but these amounts can accumulate over time into significant sums.
2. Complex Claim Processes – The process of claiming unclaimed funds can be challenging due to:
- Cumbersome Procedures: Claiming unclaimed money often involves navigating multiple steps and dealing with extensive documentation. This process can be particularly daunting if records are outdated or if the account holder is deceased.
- Legal and Bureaucratic Hurdles: The complexity of legal and bureaucratic processes, especially with the Investor Education and Protection Fund (IEPF), can discourage individuals from pursuing claims. Navigating these hurdles requires patience and often professional assistance.
- Inconsistent Guidelines: Different institutions have varying requirements for claiming unclaimed funds, which can create confusion and make the process more complicated.
3. Changes in Contact Information – Updating contact details is crucial for maintaining communication with financial institutions. Issues arise when:
- Outdated or Incorrect Details: If individuals do not update their contact information, they may miss important notifications about their unclaimed funds.
- Loss of Contact After Relocation: Moving to a new location without updating contact details can sever communication with financial institutions, leading to unclaimed assets.
- Failure to Notify Heirs: If heirs are unaware of the existence of assets, these funds may remain unclaimed after the account holder’s death.
Current Scenario in India
In India, unclaimed deposits and investments are categorised into several types:
1. Insurance Claims
Unclaimed insurance payouts and maturity proceeds are managed under the regulatory oversight of the Insurance Regulatory and Development Authority of India (IRDAI). Individuals can access information and initiate claims through their respective insurance providers, guided by IRDAI’s frameworks and guidelines.
Unclaimed insurance payouts, such as survivor benefits, death claims, and maturity proceeds, are a significant category of unclaimed funds. In 2022, approximately ₹25,000 crore was held as unclaimed by various insurance companies in India, as reported by the Insurance Regulatory and Development Authority of India (IRDAI).
The IRDAI has established guidelines to manage these unclaimed funds. According to a master circular released on November 17, 2020, insurers must transfer any unclaimed policy amounts held for over ten years to the Senior Citizens Welfare Fund (SCWF). This fund allows policyholders and beneficiaries to claim these funds for up to 25 years after the transfer.
2. Bank Deposits
Dormant savings and fixed deposits in banks represent another major category of unclaimed funds. When an account has been inactive for over ten years, or if a term deposit remains unclaimed for ten years after its maturity, these funds are classified as “Unclaimed Deposits” and transferred to the Depositor Education and Awareness (DEA) Fund managed by the RBI.
To help individuals locate and claim these funds, the RBI has developed the UDGAM portal (Unclaimed Deposits-Gateway to Access Information). This online platform allows users to search for unclaimed deposits across various banks. As of March 4, 2024, the UDGAM portal covers approximately 90% of unclaimed deposits by value. The portal enables users to:
- Search for unclaimed deposits/accounts across various banks in one place.
- Access information on the claim/settlement process for each bank, provided in the search results.
However, it is important to note that the actual claiming of unclaimed deposits must be done directly through the respective bank where the funds are held.
3. Mutual Funds
Unclaimed dividends and redemption amounts from mutual funds also constitute a significant portion of unclaimed funds. As of May 2023, around ₹2,637.94 crore of unclaimed dividends and units were held by mutual fund houses, with ₹1,659.02 crore in unclaimed dividends and ₹978.92 crore in unclaimed redemptions, as per AMFI.
Investors can track lost mutual fund investments by:
- Visiting the RTA Office: Providing a PAN card and photo ID can help retrieve folio numbers if the PAN isn’t linked.
- Checking Old Transactions: Payment receipts of mutual fund purchases can be useful.
- Retrieving CAS: The Consolidated Account Statement (CAS) sent to registered emails or generated through K-Fin or CAMS portals provides a detailed account of mutual fund holdings.
- Checking DEMAT Account CAS: Monthly CAS for DEMAT accounts lists all folio numbers.
- Visiting AMC Office: If other methods fail, visiting the Asset Management Company (AMC) with PAN details can help obtain a duplicate CAS.
- Using MF Central: This platform tracks investments linked to the PAN.
4. Provident Funds
Unclaimed provident fund contributions are managed by the Employees’ Provident Fund Organisation (EPFO). Individuals can check their provident fund status and initiate claims through the EPFO’s online portal. Unclaimed EPF funds remain with the EPFO for 7 years before being transferred to the Senior Citizens’ Welfare Fund (SCWF).
5. Shares and Securities
Unclaimed dividends and shares fall under the jurisdiction of the IEPF. If dividends or shares remain unclaimed for seven consecutive years from the due date, they are transferred to the IEPF. As of the end of the Financial Year 2022, the IEPF safeguards ₹5,685 crore in unclaimed dividends and 117 crore shares.
Regulations on Unclaimed Deposits and Investments
1977 – 1989: Initial Guidelines
The RBI advised banks to separate deposit accounts that had been inactive for over two years. Banks were instructed to contact customers with inactive accounts and investigate if the letters were returned undelivered.
2008: Strengthened RBI Instructions
The RBI issued detailed guidelines for banks to manage inactive accounts more proactively, including continuing to credit interest on savings accounts regardless of activity.
2012: Enhanced Tracking Measures
Banks were urged to actively track customers with unclaimed or inactive accounts and display lists of such accounts on their websites.
2014: Establishment of the Depositor Education and Awareness Fund
An amendment to the Banking Regulation Act established the Depositor Education and Awareness Fund, requiring banks to transfer unclaimed deposits held for ten years to this fund.
2015: Creation of the Senior Citizens’ Welfare Fund
The Central Government established the Senior Citizens’ Welfare Fund, mandating the transfer of unclaimed account balances to this fund after seven years.
2017: IRDAI Directive for Insurance Companies
The IRDAI mandated that insurers transfer unclaimed policyholder amounts held for over ten years to the Senior Citizens’ Welfare Fund.
2020: Updated IRDAI Regulations
The IRDAI updated its regulations to improve the monitoring, reporting, and certification processes for unclaimed amounts.
The Need for an Investment Tracking Mechanism
The absence of a centralised tracking system makes it difficult for individuals and institutions to locate and claim unclaimed funds. The decentralised nature of the current system leads to inefficiencies and challenges in managing and retrieving assets.
Benefits of a Tracking Mechanism
Implementing a centralised tracking mechanism could offer several benefits:
- Enhanced Accessibility: A centralised system would streamline the process, making it easier to locate and claim unclaimed funds.
- Increased Financial Inclusion: Improved access to unclaimed assets can benefit a larger segment of the population, ensuring that more people can recover their investments.
- Improved Efficiency: Leveraging technology can simplify and expedite the claims process, reducing administrative burdens and processing times.
Current Platforms for Tracking Funds
Several platforms are already working to improve asset tracking:
- Sahamati: Sahamati is a key player in the adoption of India’s Account Aggregator (AA) framework, which aims to revolutionise the way financial data is managed and exchanged. Focuses on financial inclusion and asset tracking, offering tools to help users manage their financial assets.
- Where’s My Money (WMM): An investment tracker to historically track all types of active/dead investments made by an individual which has got a digital footprint. They provide investment tracking, claim assistance and wealth management as services.
Let’s safeguard our Future Generations
A Deed of Will is a crucial legal document that ensures a person’s wishes regarding the distribution of their assets and the care of their dependents are honoured after their death. By clearly outlining how assets, including property, investments, and personal belongings, should be allocated, it helps prevent disputes among heirs and provides clarity and direction for executors. Additionally, a Deed of Will allows individuals to appoint guardians for minor children, specify charitable donations, and make other important provisions. Without a properly executed Will, the estate may be subject to state laws, which may not align with the deceased’s wishes, potentially causing financial and emotional stress for the family. Thus, a Deed of Will is essential for safeguarding one’s legacy and ensuring peace of mind for both the individual and their loved ones
Conclusion
Addressing the issue of unclaimed deposits and investments is crucial for ensuring financial security and inclusion. Effective solutions require collaboration among financial institutions, regulators, and technology providers. By implementing innovative tracking mechanisms and increasing public awareness, we can unlock the potential of these idle funds and contribute to a more efficient and inclusive financial system. The future of resolving this issue depends on unified efforts to engage and educate the public and develop practical solutions for managing unclaimed assets.
The article has contributed by Mahek Jain. She is CFA Level 2 and an MBA in Finance from Masters’ Union with 5.5 years of experience across investment consulting and project management. She is also building her startup – Where’s My Money in the same space.