Consider a situation where a client approaches you to reactivate an old mutual fund folio they inherited from a relative, which has been dormant for nearly five years. They are worried about whether the units have lost value or if the ‘unclaimed’ status means the money was taken by the government. As an MFD, your first task is to explain that the money has not vanished; rather, it has been deployed into a specific liquid or money market scheme designed for unclaimed redemption and dividend amounts, as per SEBI guidelines.
SEBI mandates that AMCs cannot simply hold onto unclaimed funds indefinitely or keep them in the original equity scheme. These amounts are parked in designated, low-risk liquid schemes to ensure capital preservation while awaiting the rightful owner. When the client finally claims these units, the payout is calculated based on the net asset value (NAV) of this liquid scheme on the date the claim is processed, rather than the NAV of the original fund from which the money was transferred years ago.
This distinction is vital for your client’s expectations. If you tell them they will receive the market value of the original growth fund as of today, they may be disappointed if the liquid scheme has provided only modest, conservative returns. Always explain that the transfer to the unclaimed account acts as a safety mechanism, shifting their capital from market volatility into a stable, regulated parking space.
By setting this expectation early, you avoid conflict and reinforce your role as a transparent professional who manages the client’s perception as much as their paperwork.
Handling these cases requires a clear understanding of the ’exit’ process, which includes identity verification and the submission of necessary forms to the AMC or RTA. Your guidance here is invaluable because an investor left to navigate the RTA’s documentation requirements alone often feels overwhelmed or neglected. By taking ownership of this administrative hurdle, you demonstrate the tangible value of your service, turning a potentially frustrating regulatory requirement into a smooth reconciliation for the investor.
Nuance
Check Your Understanding
An investor’s redemption cheque remained uncashed for more than three years, leading the AMC to transfer the amount to an unclaimed account. If the investor approaches you today to claim this amount, on what basis will the payout be determined?
Under SEBI guidelines, what is the primary purpose of parking unclaimed redemption and dividend amounts in a separate, dedicated liquid scheme?
This is a companion read for Section 4.2 — Role of Securities and Exchange Board of India from Ace the NISM Mutual Fund Distributors Exam by Akhilesh Gururani, available on Amazon Kindle.
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