Making investment is not “one-time process”

Article on IndiaInfoline quoting Swapan Khanna of

Keeping a track on your investments regularly is necessary to understand how they are doing so that you can buy or sell at the right time

According to media reports, around Rs. 220 billion of Indian investors’ money is lying unclaimed with insurance companies, mutual funds, corporate houses and banks.

Investors made these investments but never claimed them after maturity. Making investment is not a “one-time process”. You can’t just buy an insurance policy or invest in a mutual fund, savings bank account or other financial instruments and forget it. You need to “track your investments” on regular basis.

Keeping a track on your investments regularly is necessary to understand how they are doing so that you can buy or sell at the right time. An updated information about your investments will also help you comply with the income tax laws—you need the buy-sell data for claiming exemptions or paying capital gains tax while filing the returns.

The media reports said that life insurance industry has about Rs. 17.24 billion unclaimed funds lying with it. Among the unclaimed funds include policy benefits paid out, but not encashed by policyholders, maturity benefits lying unclaimed or death claims not filed by nominees.

Swapan Khanna, co-founder,, says, “Since the prime objective of buying a life insurance policy is to provide ‘financial protection to your dependents’, do ensure that in all your policy contracts you have appointed the nominee.”  He adds, “One of the main requirements for filing any life insurance claim is the submission of the original policy contract with the insurer. Ensure that all your policy contracts are safely maintained and that your nominee is aware of which policies are active and where the policy contracts are stored or maintained by you.”

Pankaaj Maalde, head-financial planning,, says, “The policyholder should also review nomination whenever required. He should change the nomination after marriage/divorce and also if nominee has died before the policyholder.” He adds, “Apart from informing the family members about where the policy contracts are stored, the policyholder should also inform the family members whom to contact when unfortunate event happens.”
Mr Khanna further elaborates, “In case of traditional plans such as money back and endowment, which provide survival benefits, sum assured (maturity amount at the end of the term), etc. Do ensure that your contact details (residential address and phone numbers) are updated with the insurers with whom you have your policy so that you receive your payouts on time.”

Amit Sethi, owner, Amvi Financials, says, “Policyholders can also opt for direct bank credit facility to make sure that the survival benefits and sum assured of their policies are directly credited to their bank accounts.” Also, if the policyholder dies, it is better to file a death claim as soon as possible. If there is a delay in filing the death claim, the insurer may become suspicious about the claim and may investigate the cause of death.

The reports also pointed out that more than Rs. 17 billion is lying in dormant accounts and unclaimed bank deposits across India. A savings account becomes inoperative if there is no activity for two years. However, the interest on savings bank accounts is to be credited on a regular basis whether the account is operative or not.

In March 2011, there were about 12 million bank accounts which were dormant. On 26 March 2012, the Reserve Bank of India (RBI) had asked all commercial banks to be pro-active in locating the 12 million account holders or legal heirs of inoperative accounts. These accounts had remained inactive for more than 10 years. From 1stJuly, all banks will have to list on their websites the names and addresses of customers who have unclaimed deposits and inoperative accounts. Also, account holders need to close down their bank accounts in case if they don’t use it.

“There are thousands of investors, who don’t know about the shares they have inherited. Others may have forgotten about the stocks they bought long ago,” the reports said.

Mr Sethi says, “Investors can reactivate their dormant demat account by writing to their brokers through post or send a registered email. To keep their demat account active, investors need to trade at least once in six months. Also, there are chances that dormant demat accounts would be misused. For instance: Brokers can access their clients’ signature and bank account details from their records. If an investor leaves transfer slips with his broker and does not check his demat account on regular intervals then a misuse cannot be ruled out.”

The only way an investor can counter this is by being “alert” at all times. Every investor should remember that in his own interest he should periodically check his demat account and ensure that it tallies with his actual shareholding. In case of any discrepancy, he should promptly bring the matter to the attention of the depository participants and see that the statement is rectified. The investors should realise that negligence could prove very costly and they may lose their securities.

The reports pointed out that, companies send out dividend warrants (or cheques) to their shareholders. If these are not encashed by them in 30 days, the money is transferred to another account. This is mentioned in the annual report as unclaimed dividend. This account remains with the company for seven years, after which the money is transferred to the Investor Education and Protection Fund. So, if you have missed out on the dividends declared on your securities long time back, there is a chance of getting them back.

Just the way, bank and trading accounts become inactive if investors don’t transact for six months, mutual fund folios also become dormant. The reports said that, mutual funds have almost Rs. 3.4 billion of unpaid dividends and Rs. 1.13 billion of unclaimed funds lying with them.  Mutual funds keep the unclaimed dividend for three months. After the dividend cheque becomes invalid, the funds are redeployed in the money market. The fund house can recover fund management charges of up to 0.5% a year on the dividend amount when the claimant finally withdraws the money.

Mr Sethi says, “Most of the mutual fund dividends are returned unclaimed due to bank account mismatch or change in postal address. Regularly updating the change in bank account and postal address with mutual fund is very important to avoid such situation.”

Mr Maalde adds, “It is not necessary to make regular investments in your mutual fund accounts. Even your minimum investment of Rs. 5,000 can remain in fund for ten or more years. The major problem in India is that people do not share their investment details with family members and also do not opt for nomination facility. Nominee also does not know about such investment. It is always advisable to invest in joint name with either or survivor option. Nowadays, direct credit facility for dividend and redemption of mutual funds is also possible through banks.” Investors can receive redemption and dividend proceeds directly in their bank account.

Also, investors can give ECS (electronic clearing service) mandates for direct credit of dividends, interest payments and maturity proceeds into their bank account.

IndiaInfoline – Swapan Khanna of i-save – Making investments is not a one-time process