Claim Your Dividends To Avoid Transfer To IEPF

There are a lot of investors who do not pay much attention to several aspects of their investments in shares. Sometimes, it is just the feeling that this is not worth the effort, while in other cases, it is laziness that is behind such a situation. This is especially true when it comes to dividends, and it is important to ensure that you have claimed the dividends that are due to you. Otherwise, the consequences can be quite grave. A closer look at the entire issue will help the investor to understand the situation better. 

Dividends that are declared by companies will go to the investor who holds the shares on the record date. The company will intimate the investors who are eligible for the dividends with respect to the tax deduction at source on the dividends so that they avoid having tax deducted at a higher rate.

However, most of these notices that are now sent via email are not even read by investors. The amount is then credited directly to the bank account linked with the demat account where the shares are held. In some cases, the shares are held in physical form and even bank details are not updated with the registrar and here, the company will issue cheques to the investor. Small amounts of dividends will come in for very small holdings and investors are often not very enthusiastic with these small amounts and they often tend to ignore them.

There are two different implications that one has to consider when looking at the dividends and whether they are claimed or not. If there is a dividend amount that has not been claimed for a period of seven years, then this will be transferred to the Investor Education and Protection Fund. This is a fund managed by the government where all such unclaimed amounts are deposited so that wrong people do not get hold of it and commit fraud.

It could be that there are some dividends that might have been missed out in some intermediate years and these can be claimed from the company if the period is less than seven years. Once it is transferred to the IEPF, then they have to be claimed from the fund following a longer procedure, including filling of the necessary forms and submitting a few documents. 

A bigger problem arises for an investor when the dividend is not claimed for a consecutive period of seven years as two things happen. One is that the dividend amounts will get transferred to the IEPF but along with this, the investor will also lose control over the shares as these too will get transferred out to the IEPF. This is serious in terms of its implications because once the shares go to the IEPF, the investor will not receive dividends on them and nor can they sell them till these are claimed back.

The first thing that an investor needs to do is to ensure that they do not ignore the small amounts of dividends that they might be receiving through cheques. Any such payments through cheques have to be eliminated. Cheque payments arise due to the fact that the shares are in physical form or that the bank account details are not available with the registrars.

This can also happen if the bank details are not correct, and the dividend was not credited to the bank account. If the shares are in physical form, then updating and verifying the bank details in the folio will ensure direct credit to the bank account. A check of the bank details linked with the demat account is necessary to ensure that this is active and correct.

In some cases, there is also the possibility that the bank account linked to the demat account has been closed, so the dividends would be getting rejected. In addition, the address linked to the demat account might be an old one, so the physical dividends on such rejections or the intimations for it might also be going to the wrong place.

This is why a close look at these details to see if they are correct and then making the required changes would be essential for the investor to ensure that things are on track.

The writer is the founder of Moneyeduschool.