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How to Dematerialize Your Physical Share Certificates?

Dematerializing your physical share certificates involves opening a demat account with a registered depository participant (DP), submitting a dematerialization request form along with your physical certificates and completing KYC requirements. The DP then process the request and forward it to the Register and Transfer Agent for verification. Once approved, your physical shares are converted into electronic form and credited to the Demat account.

Why Dematerialize Your Physical Share Certificate?

The Indian stock market has significantly evolved to cater to modern investors, offering enhanced features and greater ease of trading. In the past, the Indian share market operated using the open outcry system, requiring investors to be physically present at stock exchanges to buy and sell shares, represented by physical share certificates indicating ownership. This method became outdated with the beginning of online trading and technology-driven trading platforms.

As per the regulation set by the Securities and Exchange Board of India, trading and investing in shares is only permitted in the dematerialized format. This change was implemented to simplify the process of buying, selling and transferring company shares. However, this transition has raised an important question for investors who still possess physical share certificates. So, converting the physical share into a demat account is essential for continuing the investment.

Understanding of Demat Account

SEBI introduced a demat account in 1996, transforming investing by transitioning it to a digital platform. Demat stands for dematerialization, the process of converting physical securities into an electronic format. This allows traders to hold, transfer, and transact securities without the complication of handling physical certificates. Consequently, trading has become safer, faster, and more efficient in storing securities and executing trades.

Few Rules to Know Before Proceeding with the Dematerialization Process

Before learning how to convert physical shares into Demat account, it’s important to understand the few rules of the dematerialization process:

· Company Resolution

In India, to dematerialize shares and debentures, a company must revise its Article of Association through a special resolution passed at the general meeting to issue shares in electronic form.

· Registration with NSDL and CDSL

Private companies need to register with both the National Securities Depository Limited and the Central Depository Services Limited; depositories have their registration criteria that the issuer must meet.

· After Registration

After registration, the depositories assign a unique International Securities Identification Number (ISIN) to each type of share. The ISIN is a 12-digit code that identifies various securities, such as shares and bonds.

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· Access through Intermediary

Companies access depository services through an intermediary. The issuer must establish demat connectivity with the depositories to transfer dematerialised shares.

Step-by-Step Guide to Dematerialize Your Physical Share Certificate

Converting physical shares into Demat Form is a structured process that is generally easier to execute than rematerialization. Below is a step-by-step guide to dematerialize your physical share certificates:

Step 1: Open a Demat Account with a Depository Participant (DP)

As an investor, you must first open a demat account with a depository participant, who acts as an intermediary between you and the depository. The DP must be registered with SEBI to dematerialize shares. You can open a demat account with a bank that also functions as a depository Participant and ensure that the names on your demat account and physical share certificate match.

Step 2: Fill out the Dematerialized Request Form (DRF)

Once your demat account is open, fill out a dematerialization request form. Submit your physical share certificates to your DP. Ensure that you mark each certificate with “Surrendered for Dematerialization”.

Step 3: Submit Documents & Physical Share Certificates

After submitting all necessary documents, your DP will notify the Registrar and Transfer agent (RTA) via email or text. The RTA is also responsible for maintaining your records.

Step 4: Process of KYC

Submit copies of Know Your Customer documents, the DRF, and physical certificates. Ensure all the documents are complete and facilitate processing.

Step 5: Registration of Dematerialization

A dematerialization registration number will be generated and submitted in the dematerialization request form. This form and the original share certificates will be sent to the Registrar and Transfer Agent.

Step 6: Verification and Checking  

The Registrar and Transfer Agent will verify the authenticity of the submitted documents.

Step 7: Confirmation and Destruction of Physical Certificates

The RTA verifies the authenticity of the request and processes it. Once approved, your physical share certificate is cancelled and destroyed.

Step 8: Conversion of Shares

After successfully completing the dematerializing process and receiving approval, your dematerialized shares will be transferred or credited to your Demat account.

Step 9: Completion and Acknowledgement

Upon successful dematerialization, you will receive an acknowledgement from the DP. Your Demat account will now reflect the dematerialized shares you can manage and trade electronically.

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From Physical to Digital: Documents for Dematerializing Physical Share Certificate

Converting physical share certificates to demat requires specific documentation to open a demat account and initiate dematerialization. Below are the documents required to initiate the dematerialization process such as:

  • Proof of identity such as Aadhar card, PAN card, voter ID Card, driving license, etc.
  • Proof of residence includes registered lease agreements, utility bills, etc.
  • Proof of bank account such as recent bank passbook or account statements.
  • Original physical share certificate.
  • Duly filled Dematerialization request form, separate for each company’s shares.
  • The physical share certificate is marked “Surrendered for Dematerialization” with an acknowledgement slip.

Know the Perks of Dematerializing Your Physical Share Certificate

Dematerialization is a secure way to store shares by replacing physical certificates, which can be lost, stolen or damaged. Below are the key perks:

1. Easy and Convenient Transactions

Manage transactions electronically without the need to visit the broker. Convert physical shares into electronic format effortlessly.

2. Effortless Fund Transfer

The investor seamlessly links their Demat account to their bank account, enabling electronic fund transfer without the hassle of manual cheques.

3. Paperless Convenience

Investors can easily enjoy eco-friendly and efficient electronic management of shares and securities, which reduces administrative hassles and benefits the environment.

4. Access to Loan Facility

Use dematerialized holdings as collateral for loans, as banks accept securities in demat accounts, providing financial flexibility.

5. Easy Trackable Portfolio

Simplify portfolio monitoring with a demat account, allowing them to track investments from anywhere and aiding in better decision-making.

6. Multiple Investment Options

The dematerialized share will help manage various investments, including shares, debt instruments, mutual fund units, government bonds, etc., efficiently in one demat account.

Dematerialization vs. Rematerialization: A Comparative Overview

Below are the detailed differences between the dematerialization and rematerialization of shares:

PointsDematerializationRematerialization
Conversion ProcessPhysical shares are converted into Digital format.Digitally held securities are converted back into a physical format.
Cost & FeesInvolve annual maintenance charges and transaction fees set by the broker.Do not incur maintenance charges.
Security RiskReduce the risk of misplacement.Pose risks of fraud, theft, misplacement and forgery.
Maintenance ResponsibilityMaintained by depository participants such as NSDL or CDSL.Maintained by the issuing company.
Process ComplexityInvolves straightforward steps and is mandatory for share trading.It can be complex, requiring expert guidance and significant time.
Transaction MethodsConducted electronically.Conducted physically.

Drawbacks of Trading with Physical Share Certificates

Below are some of the drawbacks of trading or holding shares with physical share certificates:

  1. Physical share certificates easily get lost or damaged, etc. They are also susceptible to wear and tear, which leads to potential damage.
  2. Trading with physical share certificates involves multiple tedious steps, slowing the process.
  3. Transactions involving physical share certificates attract stamp duty payments, whereas transactions with dematerialized shares do not incur expenses.
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What are the Charges for Converting Physical Shares to Demat Form?

The process of dematerializing your physical shares into electronic form incurs various charges that investors need to consider:

Broker Charges

Brokers may charge fees for processing the dematerialization request, which can vary significantly. Investors should inquire about these charges upfront.

Annual Maintenance Fees

Banks and brokerage firms typically impose an annual maintenance fee for maintaining the investor’s demat account.

Transaction Charges

These fees vary among brokers and cover costs associated with each transaction made during the share conversion process.

Dematerialization Charges

The cost of converting physical shares typically varies from share to share.

Conclusion

Dematerialization is a transformative process in stock trading, offering convenience and security by converting physical shares into demat form. If you still hold a physical share certificate as an investor, then it’s smart to approach a reliable Depository participant. The dematerialization process is simple and efficient, allowing you to open a free demat account quickly and paperless. According to SEBI’s mandate, trading in the stock market requires shares to be in demat form, making this conversion essential for active trading.

FAQ’s

  1. What documents are required for the dematerialization of shares?

    The required documents are a PAN card, an Aadhar Card, a passport-size photograph, and the original share certificate.

  2. Can shares in physical form be sold?

    According to SEBI regulation, shares are publicly listed companies that can only be traded in dematerialized form. Thus, physical shares must be converted to demat before being sold.

  3. Are there any charges for converting physical shares into demat?

    Yes, processing fees and other applicable charges have been set by the Depository participant.

  4. How long does it take to convert physical shares into demat?

    The process takes around 15 to 30 days, depending on the DP’s efficiency, documentation completeness and verification process.

  5. Can an investor trade or sell their shares while the dematerialization process is underway?

    No, the investor needs to wait until the shares are fully converted and reflected in the demat account before trading or selling them.

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