Among financial products, Mutual Funds (MFs) present unique challenges which lead to the build-up of large unclaimed balances belonging to investors. Therefore, it is good that the Securities Exchange Board of India (SEBI) is proposing a common platform devised by Registrar and Transfer Agencies (RTAs), to enable investors to identify and access unclaimed MF amounts.

There are three features of mutual funds which make it important for SEBI to nudge the industry to identify and disgorge unclaimed balances. One, unlike fixed deposits or small savings schemes which carry a fixed maturity date and make periodic payouts, mutual funds usually have an open-end, cumulative structure where accumulated sums are paid to the investor only if he or she files a redemption request. MF investments can remain unclaimed when investors simply forget legacy investments or fail to intimate the AMC of a change in phone number/email or physical address. Two, as MF units are not represented by any physical certificate or even demat holdings in most cases, the only reminder to investors that they hold them comes from emailed online account statements, which can be missed. MF wealth of deceased unitholders can also remain unclaimed because their heirs have no clue about the investment. Three, AMCs earn their revenue pool entirely from fees calculated as a percentage of assets managed; this incentivizes them to hang on to the assets.

Having said this, the new MITRA (Mutual Fund Investment Tracing and Retrieval Assistant) platform may allow investors to trace and claim their MF balances at an earlier stage than with systems put in place by the Reserve Bank of India and Ministry of Corporate Affairs for bank balances and shares. Presently, investor monies from bank accounts that are inoperative for 10 years and shares on which dividends remain unclaimed for seven years, are transferred into the government-managed Depositor Education and Awareness Fund (DEAF) and Investor Education and Protection Fund (IEPF) respectively. Common platforms such as UDGAM and IEPF online allow investors to claim their monies from these funds only after a considerable lag. SEBI in contrast does not envisage transferring unclaimed MF balances to any common pool and is merely proposing a searchable database for investors to trace their funds, even as they remain invested. One hopes that MITRA learns from the sub-par IEPF experience to simplify paperwork for investors. With multiple document uploads and the need to secure an exact match on names and addresses, the IEPF claim process is complex. This has spawned an ecosystem of touts and intermediaries who charge investors a percentage of their assets as fees, simply to help file their IEPF claims.

Strangely, there is no official data available on the balances idling in inoperative accounts with the MF industry. Periodic disclosure of this data by the industry body may nudge investors to identify unclaimed holdings, and pressure the industry to disgorge this money.