In India, the Investor Education and Protection Fund (IEPF) was set up by the government to protect investors’ interests and ensure that unclaimed dividends and shares do not remain idle indefinitely. While the intent is protective, many investors are surprised to learn that their shares have been transferred to IEPF. So, what exactly happens when this transfer occurs?
Understanding the Basics
As per the Companies Act, 2013 and the IEPF Authority (Accounting, Audit, Transfer and Refund) Rules, if any shareholder has not claimed dividends on their shares for seven consecutive years, those shares are considered unclaimed. In such cases, the company is legally required to transfer the shares to the IEPF.
This applies to:
Equity shares
Unpaid or unclaimed dividends
Matured deposits and debentures
Application money due for refund
What Happens After the Transfer?
Once the shares are transferred to IEPF:
1. Shares Are Moved to a Government Account
The company transfers the shares to a designated Demat account held by the IEPF Authority. This account is maintained with a depository like NSDL or CDSL. The original shareholder no longer holds those shares in their personal Demat account.
2. Dividends Are Also Transferred
Any dividends related to those shares that remain unclaimed are also transferred to the IEPF account. Future dividends on those shares are credited to IEPF as well, until a refund is successfully claimed.
3. Shareholder Loses Active Control
The shareholder no longer has control over the shares, cannot sell or pledge them, and is not eligible for any benefits (like voting rights or bonus shares) unless the shares are reclaimed from IEPF.
Can You Get Your Shares Back?
Yes. The IEPF Authority allows investors or their legal heirs to reclaim their shares and dividends by filing an online application in Form IEPF-5, followed by submission of physical documents to the concerned company.
The process involves:
Filling Form IEPF-5 online on the official website
Sending a copy of the form with necessary documents (like identity proof, shareholding proof, and indemnity bond) to the company's Nodal Officer
The company verifies and forwards the claim to IEPF Authority
Upon approval, the shares and dividends are refunded
The process may take 2 to 6 months depending on the completeness of documentation and efficiency of the company and IEPF Authority.
Common Reasons for Shares Getting Transferred
Change in address without updating records
Not linking bank account for dividend credits
Ignorance of small dividend amounts
Death of the shareholder without nomination
Inactive or lost physical share certificates
Conclusion
While the transfer of shares to IEPF might seem alarming, the system exists to protect investors and provide a way to recover shares from IEPF for their forgotten or unclaimed assets. If you or your family members haven’t checked your shareholding status in a while, it’s wise to verify whether any shares have been moved to IEPF and initiate the reclaim process if necessary.
Staying updated with your investments, linking your PAN and Aadhaar, and ensuring correct bank and address details with your Demat account can help prevent such issues in the future.
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