Unclaimed amounts

A redemption cheque that was never banked, a dividend warrant sent to an old address — the investor's money has left the scheme but never reached the investor. Those are unclaimed amounts.

The workbook sets out what happens to them as one of the rights of unit-holders. The AMC is expected to keep reminding investors by letter to claim their dues, and the Annual Report must state the unclaimed amount and the number of such investors for each scheme.

Meanwhile the money is not left idle. The mutual fund must deploy unclaimed dividend and redemption amounts in the money market and in a separate plan of a liquid scheme floated especially for investing unclaimed amounts. So the money keeps earning.

How much the investor eventually gets depends on how long they take to claim it — which is the rule questions test.

Recovery rule:

The separate liquid plan:

AMC duties:

• A continuous effort to remind investors by letter.
• The Annual Report must mention the unclaimed amount and the number of investors for each scheme.

Related protections against money going astray, from Chapter 9:

• Investors can register up to five bank accounts (ten for non-individuals), one designated as the default for dividend and redemption proceeds.
• SEBI's measures against unclaimed assets — dormant-folio norms, mandatory contact and bank details, nominate-or-opt-out, simplified transmission, centralised death reporting — and the MITRA tracing platform.

The design logic: within 3 years, the investor gets the full benefit of the liquid plan's earnings. After 3 years the payment is frozen at the 3-year NAV, which gives investors a strong reason to claim promptly.

Two investors each had a redemption of Rs 1,00,000 go unclaimed on the same day, because the cheques went to outdated addresses. The money is moved into the separate liquid plan at an NAV of Rs 1,000, so each is credited 100 units. Assume the plan earns about 6 per cent a year after its fee (which cannot exceed 0.50 per cent a year). Figures other than the rules are illustrative.

Vandana claims after 2 years — within 3 years — and is paid at the prevailing NAV: Rs 1,12,360. No exit load.

Harish claims after 5 years — after 3 years — and is paid at the NAV at the end of 3 years: Rs 1,19,102, not Rs 1,33,823. The Rs 14,721 earned in years 4 and 5 is not paid to him.

Both would have seen their scheme's Annual Report listing the unclaimed amount and number of investors, and received AMC reminder letters — if their addresses had been current. Updating contact details and registering a default bank account is what would have prevented the problem in the first place.

Chapter 10 (Legal and Regulatory Environment), under the rights of unit-holders ("Right to unclaimed amounts"), gives the 3-year recovery rule, the Annual Report disclosure and — in a footnote — the separate liquid plan with its 0.50 per cent fee cap and no exit load; Chapter 9 adds the unclaimed-assets measures and MITRA. Expect a question on the NAV applied before and after 3 years, the maximum fee, and whether exit load applies.

• Within 3 years: prevailing NAV. After 3 years: NAV at the end of 3 years. Not the original redemption value in either case.
• Held in a separate plan of a liquid scheme, created for unclaimed amounts, and in the money market.
• AMC fee capped at 0.50 per cent per annum.
• No exit load on this plan.
• Annual Report discloses the unclaimed amount and number of investors per scheme.
• The AMC must continuously remind investors by letter.
• Unclaimed amounts (uncollected payouts) are not the same as inactive folios (units still invested) — though MITRA and SEBI's unclaimed-assets measures address both.