New Delhi, Jan. 6 -- Freelance brokers and agents have been profiting at the cost of unsuspecting investors by intermediating claims for stocks and dividend money lying with the Investor Education and Protection Fund, a top executive at the organisation that manages the fund told VCCircle.
Anita Shah Akella, the CEO of the Investor Education and Protection Fund Authority (IEPFA), said that investors can make the claim on their own through the IEPFA website but have been paying 20-30% of the claim amount to brokers as commission because of lack of awareness.
The commission can come to a substantial sum. Even though the large majority of cases is for smaller claims under Rs 5 lakh, the larger claims take the average to Rs 60 lakh. Among the larger claims is a recent one for Rs 250 crore.
The IEPFA was set up in 2016 under the Ministry of Corporate Affairs to manage the fund which houses money unclaimed by investors in the form of dividends on stocks, interest on bonds and other investments. The amount lying in the fund has steadily increased over the years, from about Rs 150 crore in 2002-03 to Rs 883 crore in 2013-14 and further to Rs 8,237 crore at the end of 2023-24, according to the authority's annual report for FY24.
Akella's team at the Ministry of Corporate Affairs and the capital markets regulator the Securities and Exchange Board of India (SEBI) have kicked off an investor awareness campaign called Niveshak Shivir across the country, in collaboration with market infrastructure institutions including BSE, NSE, NSDL, CDSL and registrar transfer agents (RTAs) such as KFin Technologies, Purva Shareregistry India and MUFG Infoline.
One of the events was held in Bengaluru on January 3 and the next one will be held in Kolkata later this month. At these events investors can file claims for dividends and shares; update their know-your-customer (KYC) documentation and nomination details; and get pending claims with the IEPFA processed.
Following the money
Publicly listed companies and stock exchanges publish the details of shareholders who have unclaimed dividends on their websites. According to a market insider who did not want to be named, the intermediation business is so lucrative for these brokers/agents that they have dedicated teams looking up these lists and, for higher value claims, even tracing shareholders from their last known address.
In an interaction with VCCircle, Akella said that she herself did not know the procedure till she joined the IEPFA. Her family had paid 30% of the share value to a broker to get a listed company to dematerialise securities worth Rs 20 lakh. After joining IEPFA and reading investor complaints that come in via their email, Akella realised that there was a whole business ecosystem around filing claims and that this was feeding off of people's ignorance.
There is also the risk that people forge documents to claim an absentee investors' dividends or shares. In the matter of the large Rs 250 crore claim that is now being processed by the IEPFA, the claimant had passed away and bogus papers had been created to make a false claim.
"There is a lot of money in this. Therefore, it is important that we reach out to them and tell them that the process is simple, that you don't need to go to anyone [to intermediate]," said Akella.
Another solution she suggested was allowing for businesses that intermediate such claims to be regulated, so that the fee charged is not unchecked. The MCA is also set to further simply the process for claims below Rs 5 lakh, by allowing self certification.
"Otherwise, the IEPFA was expending the same amount of energy for a share value of Rs 10,000 as it would for a Rs 200 crore claim, the documentation is the same, the checks are the same," she said.
Investors at the event told VCCircle that a key reason for approaching intermediaries is their experience with financial institutions and related paperwork in general.
Although the process to search and file for claims-including on how to fill the e-filing form IEPF-5 and the documents needed-is detailed on the IEPFA website, the participants shared their experience of several runs they had to make to their banks or RTAs to get their KYC paperwork updated, and the lack of clarity on documentation needed.
The participants also suggested that more such events should be conducted, where officials of SEBI, MCA, market intermediary institutions and RTAs as well as representatives from listed companies are present in one venue.
Published by HT Digital Content Services with permission from VC Circle.