Daybreak - Why investors find it almost impossible to get money back from the IEPF

Episode Date: January 20, 2023

Unclaimed funds at the government-run Investor Education and Protection Fund (IEPF) are  likely to have risen to Rs 50,000 crore ($6 billion) by now. But for an average investor, the settlement process is almost designed to discourage investors from claiming what's theirs.Now, after the Supreme Court took notice post the filing of a petition, the IEPF Authority has asked all stakeholders for suggestions to make the entire process more efficient.Tune in to find out why an average Indian investor finds it so difficult to recover their money from the IEPF.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording.

Intermission launches on March 23rd. To get alert, as soon as we release our first video. episode, please follow intermission on Spotify and Apple Podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Imagine that a relative has left you a huge treasure, but you only find out about it years later. And to find this treasure, your relative has left your map, but the map is quite vague. It only gives you some hints about where the treasure might be hidden in a giant plot of land.

You can't really make sense of this map. And the only way that you do have a chance of finding the treasure is if you dig up the entire piece of land inch by inch. This is more or less what it feels like to find details of unclaimed shares on the IPF or the Investor Education and Protection Fund website. The IEPF is a government body meant to safeguard unclaimed shares and dividends. My colleague Anand Kalyan Raman, who wrote about the process of claiming money back from the IPF, put it quite succinctly. He said that the process is the punishment. According to experts, the current value of the shares and dividends held by the IPF

could be about 50,000 crore rupees, that is close to $6 billion. dollars, and that by the way is at the lower end of the estimates. In the last two years, the funds held by the IPF have grown sharply. In fact, business journalist Sucheta Dallal even filed a plea in this regard. It demanded setting up a centralized website which would provide information about money lying in dormant accounts. This would make it easier for the legal heirs to claim the same. So in August last year, the Supreme Court took up the matter.

It asked for responses from the center, the Reserve Bank of India or the RBI, and the Securities and Exchange Board of India or Seby. And a few days ago, on the 16th of January, in a press release, the IEPF Authority invited comments from all stakeholders to simplify and expedite the claim settlement process. Today, I will tell you why the aviaping. rich Indian investor, finds it almost impossible to get their own money back from the IEPF. Welcome to Daybreak, a new podcast from the Ken. I'm your host, Nikda Sharma, and I don't chase the new cycle.

Instead, thrice a week, on Mondays, Wednesdays and Fridays, I will come to you with one business story that is worth understanding and worth your time. Today is Friday the 20th of January. To begin with, let us understand what is the IEP. and how much money does it really have? The whole purpose of the IEPF's existence is to safeguard investors money if it is unclaimed for a certain period of time. The IEPF is run by the IEPF authority,

a government body under the Ministry of Corporate Affairs. So what essentially happens is that any dividends that lie unclaimed for over seven years are transferred to the IPF for safekeeping. and so are unclaimed bonds and the interest earned on them. Not just that, a rule change in 2016 meant that shares attached to all such unclaimed dividends would also be moved to the IPF. The IPF on its part is meant to conduct investor awareness and protection programs.

It is supposed to return the money to the investors or their legal heirs. An RTI, which was filed by a public policy activist and entrepreneur Akash Goel, revealed that as of March 2021, the IEPF held over 18,000 crore rupees, which is equal to almost $2 billion. All of that was unclaimed money. But digging just a little bit deeper into the IPF authorities' annual accounts, which is available on its website, actually show a much high value of funds. It amounts to over 38,000 crore rupees, which is almost $4.6 billion.

The reason for this discrepancy is unclear, because when the Ken sent a detailed set of questions to the IPF authority, it did not respond. The Ken, meanwhile, spoke to many experts on the matter, and they think that the current value of the fund could be even bigger. About 50,000 crore rupees or $6 billion. To give you sense of just how much money the IEPF is actually sitting on, if the IEPF were a listed entity, it would be among India's top 100 companies by market capitalization. Coming up next, I tell you why it is so hard for investors to claim their own money back from the IPF. The unclaimed money that lies with the IEPF is an outcome of many factors, from investors not updating their addresses, legal errors being unaware of investments

to the closure of bank accounts linked with the DMAT accounts. Take for example the case of Harsh Rungta, who is a registered investment advisor in India's financial capital Mumbai. His elderly father left him shares worth $3,000 from HDFC Bank. After doing some research, Harsh Rungta found that two of his cousins also, had unclaimed shares worth more than 30 lakh and 60 lakh rupees each. Since it had been over seven years, he realized that the shares had been transferred to the IPF. But for Roomba and many others like him, claiming this money back is next to impossible. To start with, many don't even know their entitlement and that it has been transferred to the

IPF. Sure, the IPF Authority website has a name search of. option, but it doesn't work most of the time. Roombda tried to look for details of unclaimed shares on IPF. But he said, and I'm quoting, the IPF portal search functionality produced nothing. End quote. Other market experts and other investors say the same thing about the IPF. The basic search for claims on the IPF Authority website is almost like banging your head on a wall for many people.

Why? Because the portal requires that the search be based on the exact first, middle and last name combination of the investor and their father or husband. As Indians, we know that this can be quite tough. Market experts explained it to us. They said that there could have been different name combinations in the original shareholdings with just initials, modified spellings, etc. Also, we cannot rule out data entry errors while converting the original physical shares, many of which go back to the 1990s or even before that. And add to this technical glitches, a search instead of giving results, often throws up errors. Non-official platforms actually use this as an opportunity. They compile all the information and offer search and retrieval services for the unclaimed money to investors.

Share Samadhan, Recovery and Jivantika are among some of them. So, say an investor hires such a third-party agency and finds the relevant information. They would then assume that the biggest hurdle is crossed, right? Turns out, finding out these basic details is just the first step. The claim and recovery process is just harrowing to say the least. Once a lucky investor has found this basic information, they usually go to another third-party service provider. Some of these service providers call themselves professional retrieval experts.

But most of them, unfortunately, only exploit the vulnerability of these investors. They charge a fee which could be a flat charge for smaller cases or a percentage between 10 to 25% of the value for large ones. Experts say that some players, generally individual operators, charge up to 50% of the proceeds in some cases. The IBAF Authority, meanwhile, discourages investors from approaching third parties. But what are the choice to investors or claimants have?

This is exactly why Harsh Rungta went to non-official websites that allowed the search based on just part of the name or the surname. He lucked out and got the information on his relatives' unclaimed funds there. But not everyone is so. lucky. The IEPF on its part provides FAQs and even a toolkit to help claimants saying outside help is not required for them. But to investors, these are just meaningless words. Rajat Datta, the founder of inheritance needs services, a provider of inheritance related services, pointed out another issue. Dutta says that once the application process is underway, some companies

and RTAs or registrar and transfer agents do not disbursed unclaimed dividends if they have not crossed the seven-year-old threshold. And because of this, they have not been transferred to the IEPF yet. This is despite the companies and RTAs themselves certifying the identity of the claimant as a shareholder to the IEPF authority. Dutta says that this is violative of the Companies Act. Like Anand says in his story, the process is nothing short of a punishment. And this probably explains why the total value of refunds by the IEPF is unlikely to have crossed 2,500 crore rupees so far. That is just about 5% of the total value that the IEPF actually holds.

This estimation is based on the numbers that the IEPF itself has published so far in its newsletters plus its past aggregate settlement metrics. So now that you understand what Anand meant when he said the process is the punishment, let us look finally at what the solution to this could look like. Experts have called for reforms on multiple levels at the IPF. And one thing that they all agree on is the need to deploy effective technological solutions to address problems faced by claimants, especially the search. for entitlements.

Kagesh Chitlangya, the founder of Jivantika, says that the whole process should be made electronic and paperless. Claimants, especially senior citizens, should not have to step out of their house and go from pillar to post to get what is theirs. Transparency in the disclosure of the information in the public domain is also being demanded. Mukulashir, an independent consultant in economics and public policy, says that the IEPF authority needs to set up a dashboard that would give details of the funds that they hold, the number of investors that they have serviced, the backlog, the time taken to settle claims

and other key performance indicators. And last but not the least, the IPF is currently not accountable to any financial regulator in the country. But with the amount of money that the organization is sitting on, this needs to change immediately. An ex parte of the company, an expert who did not wish to be named told the Ken that ideally it should be regulated by Sebi. For now, the last date for sending comments and suggestions to the IEPF is January 27, 2023. And they can be sent via email at IEPFA.com consultation at mca.jov.in. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings.

A full subscription unlocks daily long-form feature stories, newsletters, subscriber-only apps and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. I am Snigda Sharma, your host, and today's episode was edited by my colleague Rajiv Sien.