Dematerialisation of Shares & Debentures in India

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Preface of Dematerialisation of Shares

To own a share certificate comes with risks such as counterfeit certificates, misplacement, and delays in the transfer of certificates. Dematerialisation of shares enables customers to transform their paper certificates into digital form, thus removing the mentioned inconveniences.

For the customers or shareholders, the Indian stock market can be considered the best option for investors looking to utilize their funds for short-term or long-term purposes.

 In the past, companies used to distribute share certificates in physical paper form. Although paper certificates were convenient for distribution and safekeeping, they posed a potential risk for the shareholders. We will help shareholders who often encounter issues such as certificate forgeries, document loss, and delays in transferring physical share certificates.

How does the Process of Dematerialisation of Shares Work?

The process of dematerialisation of shares is the mechanical conversion of paper share securities into electronic certificates, which brings transparency and more security. The procedure removes the need for brokers and other financial intermediaries in security trading, ultimately empowering the shareholder with total control.

Furthermore, dematerialisation alleviates the burden of extra costs for you. It simplifies trading by providing a secure platform for worldwide stock investors to invest, engage, and make profits. Dematerialisation of shares also simplifies trading through technology in a straightforward manner.

Brief History of Dematerialisation of Shares in India

Through the advent of the liberalization phase in the Indian economy in 1991, the establishment Securities and Exchange Board of India was established in 1992 to overview the condition or functioning of the capital markets concerning the dematerialisation of shares. Any depository that is considered to be in charge of storing the shareholder's securities in electronic format.

The securities, such as bonds, government securities, and mutual fund units, are held by a Depository Participant who is registered, and any Depository Participant acts as a representative body or agency of the depository, offering depository services to traders and investors following the Depositories Act, of 1996.

Currently, there are two depositories approved by SEBI and authorized to function in India as National Securities Depository Ltd. & Central Depository Services Ltd. 

Under the provisions of the Company Act of 2000, it became mandatory to issue or sanction IPOs worth Rs 10 crore or more solely in dematerialised form. At present, it is not possible to engage in stock trading without having a Demat account.

New Guidelines on Dematerialisation of Shares

For all the private companies instead of the small company incorporated in India and for any subsidiary company that is not a small company defined as a company whose turnover does not exceed the minimum paid-up share capital of amount of 4 Crores or a turnover of up to 40 Crores in immediately preceding financial year.

If it has been observed that the small company is exceeding the threshold limit set for it then it will be categorised as a non-small company and shall be subject to the requirement of dematerialisation.

Contrast b/w Rematerialisation & Dematerialisation of shares

We have already discussed the dematerialisation of shares in electronic form, while Rematerialisation involves converting electronic shares back into physical certificates. You have the option to convert your shares back into physical form whenever you choose, with the process being completed in 30 days. Despite this, regenerated stocks lack liquidity since they are not tradable. It is crucial to grasp the distinction between dematerialisation and rematerialisation when learning how to convert physical shares into Demat online, as discussed below:

  1. The dematerialisation of shares is a unique kind of ISIN, whereas the re-materialisation of shares has distinct numbers.
  2. Dematerialisation of shares allows the transaction to take place electronically whereas the rematerialisation of shares is to be traded physically and to abide by the SEBI norms whereas the rematerialised shares cannot be traded. 
  3. The main distinction between dematerialisation and rematerialisation is the safety of securities. Dematerialised shares have a reduced risk of theft compared to physical certificates, which are easier to forge or fraud.
  4. It is also noticeable that the electronic shares are to be stored in a secure depository for which the investors need to pay maintenance charges with annual fees ranging from 500 to 1000 INR approximately, whereas the rematerialisation of shares is easier to forge or fraud physical certificates. 

Procedure for Dematerialisation of Shares

There are certain processes we follow while providing our services related to performing the dematerialisation of shares. The procedure followed for the dematerialisation of shares is straightforward to comprehend. Additionally, it only requires a couple of days to finish. Here is a short description of the procedure for dematerialising shares mentioned below for your better understanding:

  1. We will help you with Dematerialisation, starting with opening a Demat account. For a Demat account opening, you need to shortlist a Depository Participant that offers Demat services. 
  2. The second step we follow to change physical shares to electronic or demat forms, you need to fill out a Dematerialisation Request Form from the depository participant and submit it with share certificates. Each share certificate submitted for dematerialisation must include this information.
  3. We will also contact the depository participant to handle this request and send the share certificates to the company, registrars, and transfer agents through the depository.
  4. After the dematerialisation of shares process is approved, the physical share certificates will be destroyed or of no use, and confirmation of dematerialisation will be sent to the depository.
  5. The depository participant will then verify the conversion of shares into electronic form for the DP. Once completed, the investor's account will electronically show credit for holding shares in the dematerialised form. 
  6. This particular cycle takes approximately 10 to 30 days from the date of submission of the materialisation of the shares request. 
  7. Understanding the dematerialisation of shares requires learning how to open a Demat account, as this is the only way to achieve dematerialisation. We will help you materialise with our associated depository partners registered with CDSL or NDSL by offering you the best hassle-free demat account opening process. 

What are the Benefits of Dematerialisation of Shares?

There are certain benefits to availing ourselves of the dematerialisation of shares. We have discussed below the wide range of our services related to the dematerialisation of shares and debentures as follows for your better understanding:

1. Convenience Guaranteed

We will guarantee you easy convenience for the dematerialisation of shares so that you can oversee your investments and trades from any location, such as through a smartphone or computer, without the requirement of being there in person. When you convert securities into electronic equities, you are considered the rightful owner of your shares, and to follow this step, there is no requirement to transfer certificates to the company's registrar.

2. Reduction in Operational Cost

It can be noticed that the stamp duty cannot be levied on your dematerialised sharers. Also, the holding charges that are levied later on are very minimal. Also, you can buy shares, securities or debentures in the form of odd lots and buy them as a single security. 

3. Fastrack, Economical and Eco-friendly

Dematerialisation of shares can prevent additional costs that might otherwise impact your finances. There are no stamp duty charges for e-securities, saving money. Additionally, the fees for holding shares in Demat accounts are minimal. Dematerialisation allows you to purchase securities according to your income level without any limitations on quantity. Furthermore, dematerialisation reduces the need for paper, thus preventing paper wastage.

4. Easy and Fast Transactions

We will give you full assistance in opening Demat accounts for the dematerialisation of shares, which has greatly simplified and made the lives of both investors and traders much easier and fast-track transactions. Investing has become easy, from securely storing shares in one place to having a consolidated statement of all your securities and convenient online trading through Demat accounts. 

5. Secured Transactions

Securities are electronically credited and transferred. Therefore, the dangers linked to paper securities, like fraud, forgery and theft, are avoided with the dematerialisation of shares. You can use both of them online and from any location, even while on vacation and having a Demat account makes trading easier and offers great chances to capitalize on stock market fluctuations for profitable returns.

Documents Required for Dematerialisation of Shares

There are certain documents required for the dematerialisation of shares, from the physical share certificates to digital forms, which are to be submitted before the competent authority can regularise your dematerialised shares. There are the following documents need to be submitted for the dematerialisation of shares mentioned below for your better understanding:

  • Application to Depository
  • Certified True copy of Board Resolution
  • Net Worth Certificate Certified by a Practising CA
  • Incorporation Certificate
  • MOA & AOA
  • Copy of PAN Card of Company
  • Audited Financial Statements for the Last Financial Year
  • Annual Reports for the Last Financial Year
  • Undertaking of NSDL

Penalties & Consequences of Non-compliance

If any company or even the shareholders do not comply or abide by the requirement for dematerialising its shares by 30th September 2024, then these are the consequences in the form of penalties that can be attracted as mentioned below:

  • The company will not be able to issue or allot any type of securities or shares.
  • The shareholder will not be able to transfer or even subscribe to any type of share or security.
  • The monetary penalties can be levied on the company for 10,000 INR also including 1000 INR for each day violation for the maximum limit of 2 Lakh INR
  • The monetary penalties can be applied for every officer of the company who is in the default same as mentioned above for a maximum limit of 50,000 INR.

Checklist for Dematerialisation of Shares

Understanding the method of converting physical shares to Demat online involves adhering to the dematerialisation procedure established by the Securities and Exchange Board of India. The initial phase of the two-step procedure involves creating a Demat account and then submitting a dematerialisation request for shares. We have prepared a checklist which will be helpful for you to dematerialise your shares in the following ways mentioned below:

Opening of Demat Account

  • With the help of our associated depository participant, open a Demat account.
  • Click on the tab to open a demat & trading account.
  • Fill out the application form.
  • Upload scanned copies of all the necessary documents to know your customer.
  • Sign the agreement along with the DP, which includes charges.
  • Once for all the documents required.
  • Successful approval of your demat account and trading account application.

Request for dematerialisation of shares to open a Demat account to convert physical share certificates into dematerialise form with dematerialisation request form.

  • DP will send the request for the dematerialisation of shares to the concerned.
  • Dematerialisation request to the concerned company to appoint a registrar and share transfer agent.
  • Once the dematerialisation request is approved or permitted, the physical certificate is destroyed, and your demat account is credited with the required number of shares. 

Challenges with the Dematerialisation of Shares

There are certain challenges in dealing with the dematerialisation of shares. The electronically controlled demat account can sometimes be difficult for people without knowledge of smart gadgets. It also sometimes increases the liquidity ratio but has rendered the market volatile. But we are here to overcome these challenges in dealing with the dematerialisation of shares. Here is the list of challenges mentioned below for your better understanding:

1. High-speed Trading

Smoother communication and transactions have increased market liquidity while also raising volatility levels. Hence, investors frequently prioritize short-term returns over long-term benefits. But we are here to help overcome the challenge of safety and security in the process of dematerialisation of shares. 

2. Tech Challenge

Individuals who lack proficiency in using computers quickly or who have slower computer systems may find themselves at a disadvantage compared to those with superior software and computer skills. Furthermore, it is important to consider additional information while going through the process of dematerialising shares, in addition to the discussed advantages. 

However, our experts are here to provide full assistance in overcoming the technological challenges of the dematerialisation of shares. 

3. Lack of Understanding & Awareness

A major obstacle for producer companies is the lack of knowledge and comprehension about the dematerialisation process. There are some of the stakeholders, such as farmers and small-scale producers, might lack familiarity with the complexities of digital financial systems, making it challenging to persuade them of the advantages of the dematerialisation of shares. 

We are here to help you understand the importance of dematerialising your physical share certificates into virtual mode. 

4. Security Risk

Sometimes, the dematerialisation process brings about fresh security issues, like cyber-attacks and data leaks. Producer companies without b cybersecurity measures are at risk of unauthorized access and potential financial losses. We are here to help you tackle crucial issues by addressing security issues to establish trust in the dematerialisation process.

What is the Fee and Timeline for Dematerialisation of Shares?

The basic fee for providing assistance in the dematerialisation of shares is Rs 45000. The timeline varies from case to case. However, the general timeline for the dematerialisation of shares and debentures is one working month. 

Why choose Enterslice for the Dematerialisation of Shares?

Choosing us for the dematerialisation of shares comes with multiple benefits, including guarantees of effective management and compliance with regulations by utilizing their knowledge of legal and financial services, such as dematerialisation processes. Our experts can mould complex regulatory demands, making the process more efficient and saving time and effort. We are also here to improve client convenience and accessibility by utilizing advanced technology platforms. 

Moreover, our committed customer service guarantees a convenient experience by promptly handling any questions or worries. Competitive pricing provides cost-effectiveness, delivering value for money. In general, choosing Enterslice offers a sense of comfort, with the assurance that skilled experts are handling the dematerialisation process efficiently.

Our Comprehensive Package for the Dematerialisation of Shares includes-

  • Dematerialisation Advisory Support
  • Document Preparation
  • Regulatory Compliance
  • Managing Client Accounts with Depository Participants
  • Audit and Due Diligence
  • Post-dematerialisation Support 

Frequently Asked Questions

The term dematerialisation of shares can be defined as the process of conversion of physical shares into digitized or electronic forms and the main agenda is to smoothen the process of selling, buying, and holding the shares.

The time limit for the dematerialisation of shares is 18 months from the date of closure of the financial year to the end of or after the period of 31st March 2023, with the due date being 30th September 2024.

As already discussed above, there are certain ways to proceed with the dematerialisation of shares, starting with filling out the dematerialisation request form upon opening the demat account.

Yes, it has been mandated from the Rule-9B of PAS rules which has talked about the issuance of shares or securities in a dematerialised format in their accounts before the due date of 30th September 2024.

There are certain advantages of the dematerialisation of shares, such as that it functions as a bank account to hold your money, and also the Demat account securely holds your shares, etc, already discussed above.

The full form of the term demat account is the dematerialisation of shares and the process of holding investments like shares, government securities, mutual funds, etc.

Those who hold securities that have not been admitted to the dematerialisation process by the NSDL cannot be dematerialised.

Certain exemptions for the dematerialisation of shares through wholly-owned subsidiaries are exempted from the dematerialisation requirement as stated under Rule-9A.

The opposite of the dematerialisation of shares is the dematerialisation of shares, which is the process where the investor who has converted shares or securities in a digital format converts it to the physical format.

The full form of CDSL can be found at Central Depository Services Limited (India).

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