Assume Mr.X has an investment in ABC Mutual Fund. What if he hadn’t shared this knowledge with his family, and he died unexpectedly? What will happen to his unclaimed Mutual Fund?
Many of us may experience this. Because I have noticed that the head of the family in many homes never bothers to disclose financial facts to his family. Otherwise, family members never take an interest in knowing about the investing details.
What happens to unclaimed mutual funds in this situation?
What happens to unclaimed Mutual Funds?
Relax!! There are options for this. Before we go further, let us first understand what you mean by UNCLAIMED MUTUAL FUNDS. Whether it is a deceased person’s invested amount (which the family is ignorant of) or a redemption or dividend payout that has not been transferred into the unit holder’s bank account?
If you are familiar with mutual fund characteristics, you will observe that there is no maturity notion in mutual funds (except FMPs, Closed Ended Mutual Funds, or Target Maturity Funds). Even if no one claims the deceased’s invested amount, the mutual fund will continue to operate normally without being segregated as an UNCLAIMED MUTUAL FUND.
Hence, in such a situation, mutual fund companies will come to know about the death of the unit holders only when the family members approach the mutual fund companies for the claim.
This appears to be a little frightening to me. There should be certain rules in this regard, such as if there are no transactions or updates for a particular folio for x years, mutual fund companies should contact the unit holders to find out what their status is. Otherwise, if the unitholder dies without sharing the mutual fund investment data with relatives, and if the fund is an open-ended fund, an investment may remain with AMC in perpetuity. In such a situation, AMC will be unaware of the unitholder’s death, and family members may be unaware of the mutual fund investment.
Because, under the existing SEBI guidelines, the invested cash is not separated as unclaimed as long as the unit holder cannot collect the redemption or dividend payout amount.
As previously stated, default redemption is available for FMPs, Closed Ended Mutual Funds, or Target Maturity Funds and the dividend payout option is available if the investor has chosen the dividend payout option. What if the investors are not in these two categories, such as those who invest in open-ended mutual funds with growth options? IT WILL REMAIN WITH THE MUTUAL FUND COMPANY FOREVER!! Because I am unable to locate SEBI’s guidelines and regulations for such scenarios.
As a result, the only way to deal with such frightening scenarios is to notify your family members about your mutual fund assets. Otherwise, AMCs will assume you’re still alive and carry on as usual. Your family may never claim the money you have invested.
Here, one advantage for those who have a Demat account and units are held in Demat format, is then if your family members came to know about your mutual fund holdings through a Demat account, then they may approach the mutual fund companies to claim your investment. However, I am not advocating holding units in Demat format as it comes with a lot of disadvantages.
How to locate and claim the unclaimed mutual fund redemption or dividend?
SEBI laid down the guidelines for unclaimed redemption and dividend payout. As per this, redemption cheques/ demand drafts sent to investors that remain unpaid beyond their validity period are categorized as unclaimed.
SEBI has made it mandatory for AMCs to provide the details of unclaimed investments on their websites. An investor can check unclaimed sum, if any, by simply providing his folio number on the AMC’s website.
AMFI provided the single point of AMCs links which will redirect to the respective AMC’s particular page for checking the unclaimed redemption and dividend (Refer to this AMFI link). However, the surprising fact is that few links are not working!! This shows how much mutual fund companies care for our money and follow the regulations strictly.
If the investor does not remember his folio number, he may go to the website of the registrars of CAMS or KFintech to check the unclaimed money status by inserting details like PAN number and email id or mobile number, or bank account details.
To claim such unclaimed redemption or dividend amount, investors are required to submit the completed “Unclaimed redemption/dividend claim form” and comply with the requirements stated in the form.
After this, investors will receive the original amount payable to an investor, together with any interest earned thereon by deployment in permitted instruments (Overnight Funds, Liquid Funds, and Money Market Funds of AMC specifically for the deployment of the unclaimed amounts.) and until three years from the date of the instrument.
Do remember that AMCs will not be permitted to charge any exit load in this plan and the TER (Total Expense Ratio) of such plans will be capped as per the TER of the direct plan of such scheme or at 50bps whichever is lower.
Any interest earned after this date is transferred to the Investor Education and Protection Fund in accordance with the provisions of extant SEBI Regulations / Circulars & Guidelines. These provisions also specify the nature and manner of utilization of such amounts.
To claim the interest earned on your investment after three years, you have to approach the Investor Education and Protection Fund Authority. The procedure is laid down clearly on their website. You can refer to the same (LINK).
Conclusion – Given all of the current ambiguity, it is always best to disclose your mutual fund investing information with your family. Also, ensure that you have updated the most recent communication details (such as address, email address, and contact number) and bank information. Otherwise, whatever wealth you have accumulated may be WASTE (if you have invested in open-ended mutual funds with a growth option and your family is ignorant of your investment), or your family may have to fight for the unclaimed redemption or dividend amount.
Agree with your excellent article. As we remember in the good old days it was mandatory for all AMCs to send every six months a communication of folios with no transactions over a certain period and we were regularly receiving the same in name of my parents from UTI, SBI, ICICI, etc – has this stopped now? This should be made compulsory for all AMCs & mandatorily followed seriously by SEBI too with communication that can be now sent, where available, by post, email, WhatsApp, sms etc as part of service if they say and to prove that “Mutual Funds sahi hai”
Now it is CAS than physical copies.
N ice one Dear Sir. Thanks for educating.
Next time may explain how to consolidate many folios in one MF, the advantages and disadvantages. Can one have in one folio different categories like pure equity,hybrid,debt etc ? Taxation aspects too.
May explain the concept of folio. Is it like a bank account only.
Separate advice for senior citizens how to preserve, grow the retirement corpus beating inflation,continuing the same standardof living
Surely and thanks for providing the inputs for my next writings.