₹505 Crore of Unclaimed Wealth Accumulates, SEBI Proposes a Systematic Returns Framework

The Issue of Unclaimed Assets in Indian Markets

The Securities and Exchange Board of India (SEBI) has identified a significant concern in the financial markets—unclaimed investor funds and securities. As of January 31, investors have left approximately ₹323 crore in funds and ₹182 crore in securities unclaimed. To prevent misuse and facilitate timely returns, SEBI has proposed new guidelines involving brokers, stock exchanges, and investor protection mechanisms.

Defining ‘Unclaimed’ Assets

Unclaimed assets arise when funds or securities cannot be credited back to an investor’s bank or demat account due to various reasons, such as inactivity or incorrect details. SEBI has now standardised a process to classify funds or securities as unclaimed:

• If a client’s broking account is inactive for 30 consecutive days, the broker must return any unutilised funds to the investor’s bank account per the monthly settlement cycle.
• For active accounts, unutilised funds are to be credited monthly or quarterly based on the client’s preference.
• Shares purchased by an investor must be transferred to their demat account by T+1 (the day after the transaction). If not, the broking account is placed under ‘enquiry status’, and the securities are categorised as unclaimed.
• If an investor’s bank or demat account is inactive or incorrect, or if the investor has passed away, funds or securities can be transferred to their nominee or legal heir.

Treatment of Unclaimed Funds

To ensure investor protection, SEBI has mandated that brokers must:

• Park unclaimed funds in low-risk investments such as liquid or overnight mutual funds and fixed deposits.
• Transfer or pledge these funds to a clearing corporation to generate a minimum return.
• Attempt to contact the investor at least six times before transferring the funds to the stock exchange.
• If funds remain unclaimed for three years, they will be moved to the Investor Protection Fund (IPF). Investors can still reclaim them, but with interest only up to the fourth year.

Treatment of Unclaimed Securities

SEBI has outlined a structured process to handle unclaimed securities:

• Brokers must transfer unclaimed securities to stock exchanges within seven days.
• These securities will be pledged in favour of the stock exchange’s demat account.
• Any corporate actions such as dividends and bonus shares will be credited to the investor’s ledger and transferred accordingly.

The Role of Stock Exchanges

Once brokers transfer unclaimed funds or securities, stock exchanges take on a supervisory role to locate the investors. Exchanges must:

• Use databases such as Unique Client Code (UCC), depositories, and KYC registration agencies to track investors.
• Contact investors through text messages and emails.
• Deploy unclaimed funds in low-risk investment vehicles such as liquid mutual funds, treasury bills, or government securities.
• Ensure brokers follow SEBI’s protocol in handling unclaimed assets.

Additionally, stock exchanges must attempt to contact nominees, employers, or introducers who may help locate the investor.

Process for Claiming Unclaimed Assets

Investors or their nominees can reclaim their funds or securities under the following conditions:

• If a claim is made before assets are transferred to the exchange, the broker must verify and process the claim within 5 working days.
• If a claim is made after the assets have been moved to the exchange, the broker must first verify the claim before forwarding it to the stock exchange, which then has 10 working days to process it.
• If a broker defaults, unclaimed assets automatically go to the stock exchange, and investors must claim them directly from the exchange.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.