Have you or your family member recently come across a physical share certificate that would have been purchased many years ago? If yes, then you should know that since 2019, the Securities and Exchange Board of India (SEBI) allows trading of only such shares that are held in electronic format. While this does not mean that you cannot hold physical shares, only you will not be able to sell or transfer these.
This dematerialisation mandate laid out by SEBI is a step towards making the buying, selling, and transferring of shares easier than before. Therefore, if you’re currently holding physical share certificates of a listed company, you must get them converted into an electronic format before you sell or transfer these. This process is commonly known as dematerialization (Demat).
Here, we will explain the concept of dematerialization and steps to convert physical shares to Demat.
What is Dematerialisation?
Dematerialisation of shares involves the conversion of physical share certificates in electronic or digital format. Dematerialised shares are then held by the investor or shareholder with a depository in a Demat account. With the dematerialisation of shares, shareholders need not worry about the safety of their stock investments, since these are held securely in digital form.
To convert physical shares to Demat, you will first need a Demat account that has to be opened with a Depository Participant (DP). Once it is opened, you can raise a request for conversion of physical shares. Here is how you can go about converting physical shares to Demat:
Open a Demat and trading account
- To convert physical shares into demat form, the first step is to initiate a Demat and trading account opening by reaching out to a Depository Participant (DP). This can be done via a broker. Visit an online broker or broking platform and request for a demat and trading account.
- Visit the section for opening a demat and trading account.
- Fill in the broker’s application form.
- Submit KYC documents online by scanning all the necessary documents.
- The process also requires an applicant to sign an agreement with the DP and pay the applicable charges, such as annual maintenance and account opening charges, as applicable. The agreement states the responsibilities of the depository participant and the account holder.
- After submitting all the relevant documents, the application is processed by the DP.
- Post approval of the Demat and trading account application, you will receive a unique user ID and password that can be used for accessing trading and Demat account.
Request for Dematerialization of stocks
After the Demat account has been activated, you can request for conversion of physical share certificates into dematerialized form.
Here are the steps to be followed for requesting dematerialization of physical shares:
- Contact the Depository Participant or DP via broker to get a Dematerialization Request Form (DRF).
- After filling up this form with the required details, submit it along with the physical share certificates, to the DP.
- Here, you must ensure to write ‘Surrendered for Dematerialization’ on every physical share certificate copy.
- The DP, to process this request, will forward the dematerialization request to the respective company’s Registrar and Share Transfer Agent (RTA).
- After approval of dematerialization request, the physical share certificates are safely discarded and the Demat account is credited with the applicable quantity of shares.
Physical shares will soon lose their validity due to SEBI’s mandate about migrating to dematerialised format. The market regulator has set this mandate as electronic bookkeeping is supposed to be hassle-free and it helps in reducing the risk of forgery. With this, the governing organisation expects to raise investor confidence through additional transparency in securities transactions. Hence, if not done already, it is the right time to open a Demat account.
It is a common misconception that converting physical share certificates to Demat is a lengthy and time-consuming process. However, this is far from true. With digitisation, the process is very simple and does not take very long. After dematerialisation of share certificates, it is far more convenient for investors to trade in them. The Demat account also guards investors against possibility of physical damage by loss or misplacement of share certificates.
Yes, as per SEBI guidelines, it is mandatory to dematerialise physical share certificates. This is aimed at simplifying buying and selling while eliminating any room for frauds in such transactions.
Physical share certificates act as proof of a shareholder’s ownership in a company. However, physical share certificates have now been replaced with digital shares that are electronically held in Demat accounts.
To open a Demat account easily, you can download the Finity app on your smartphone. This app allows a seamless KYC and account opening process that can be entirely executed online.
The charges of opening a Demat account depend on the broker or broking platform that one selects and the depository participant that the broker is linked to. Some online broking platforms allow investors to open Demat accounts at zero cost.
Yes, generally a fee of Rs. 150 plus taxes is applied for conversion of each physical share certificate into Demat form.