Lost money in mutual funds
Guess how much money there is in Indian mutual funds whose owners are untraceable? You'll be stunned
By Dhirendra Kumar | Aug 6, 2018
Do you have some old mutual fund investments that you have forgotten about? Perhaps some inheritance? Are you sure? Absolutely sure?
I'm asking because India's mutual funds have Rs44,000 crore of investors' funds which are orphaned--whose investors are untraceable. Presumably, either they or their heirs have forgotten about these investments. This is a huge sum, about two percent of the total amount of investors' money that is there with mutual funds. Not just that, I think it's a reasonable assumption that almost all of these forgetful investors are individuals, and not companies. And if this reasonable assumption is true, then this money is approximately 3.6 percent of the amount of money that individual investors have in mutual funds.
It's horrifying to think that in a country in which money is, so to speak, rather hard to come by for most people, this much money has simply been abandoned. The obvious question is, how did this happen, and why is nothing being done about it?
Looking at the history of banking and the mechanics of investing in mutual funds, it's obvious that this must all be old money, invested before the times of PAN linkage and rigid KYC norms. As far as I know, even before PAN linkage and KYC, for almost two decades, funds are recording the source bank account from which the money has come in. Roughly speaking, that means that all, or almost all, of this unclaimed money would date back from before the year 2000. Some of it would be much older. Given how fund investments have grown, the original invested amount could be anywhere between Rs2000 to Rs5000 crore.
That means that many of these investments could be 10 to 20 times of the original invested amount. Imagine how wonderful it would be if these investments could be restored to their rightful owners. Someone whose parent may have made an investment of Rs5000 in the mid-nineties could suddenly get a lakh of rupees if he or she could be identified. That's where things get even more surprising. It turns out that till some years back, this sum was more than Rs 1 lakh crore, and must have been close to 10 percent of individual's investments at that point. What remains today is the residual amount whose investors have been harder to trace. However, what that means that there should be a greater effort to find the rightful owners.
There's another aspect to it, which is more alarming. In India, as per the law unclaimed dividend income can be appropriated and put in an 'investor protection' fund if not claimed for seven years. This is just as true of stocks as it is for mutual funds. Actually, this is not about dividends alone. It seems that if your investments are in any cumulative form, then the government cannot grab it. However, if any part of your investment or income from it is disbursed to you, and you or your descendants are unable to claim it, then it can be hijacked and spent on this so-called investor education. In mutual funds, if you invest in an open-ended growth plan, it's yours forever. However, if you invest in a dividend plan, or a closed-end plan (which will get automatically redeemed at a point), then the dividends and redemption money is up for grabs by the government. If an investor shifts residence, closes a bank account, or (as often happens) passes away without leaving complete information for descendants, then after seven years, the money is pocketed by the government. Even if a genuine claimant appears after seven years, the money will not be restored to him or her.
This is, basically, theft by the government and has always been like this in India. However, it's utterly unjust. By rights, the dividend you earn should be as much your property as anything else your own. There can be no reasonable legal theory under which it can just be taken away.
Don't you think this is unreasonable and laws should be amended to prevent it from happening?