Currently most fund houses deploy unclaimed money in bank fixed deposits.
SEBI may allow fund houses to deploy the unclaimed mutual fund dividend and redemption proceeds lying in bank fixed deposits to be invested in liquid funds.
It is learnt that some fund houses had requested SEBI that they should be allowed to launch liquid funds exclusive meant for managing unclaimed proceeds. This matter was discussed in SEBI MF Advisory Committee meeting held in Mumbai recently.
Where is the money being currently invested?
Fund houses are supposed to deploy unclaimed proceeds three months after it remains unclaimed in money market securities. Sometimes, AMCs do not find it feasible to park money in money market due to operational difficulties. So, a majority of fund houses currently deploy this money in bank fixed deposits.
Claiming dividend/redemption proceeds
If an AMC receives claims from investors, the AMC redeems the proportionate amount of securities and pays it to investors. If investors claim the money within three years then payment is based on prevailing NAV after adding the income earned on unclaimed money. If investors claim money after three years, the payment is based on the NAV at the end of 3 years.
Fee
AMCs are allowed to charge a maximum 0.50 % per annum as investment management and advisory fees, though it is up to the AMC to decide if they wish to charge this fee. Some fund houses do not charge any fee for deploying these unclaimed proceeds.
Investor protection fund
If investors fail to claim their money even after seven years, then the accumulated fund gets transferred to Investors Education and Protection Fund (IEPF) which is utilized for spreading financial education. Once the amount gets transferred to IEPF it can’t be redeemed.
AMCs are expected to remind their investors to claim their proceeds. The unclaimed amount is mentioned in the annual report of AMCs.
Instances where the dividend or redemption cheques return to the fund house because investors have not updated their address with the fund house were quite common earlier. Today, most investors opt to receive their dividend or redemption proceeds directly in their bank accounts through electronic clearing service (ECS).
