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The regulatory reforms have consistently compelled investors to convert the physical shares into demat accounts to facilitate clear and efficient systems of the market. Most transfers are no longer done using physical certificates, except for a few legal cases. Such a change safeguards investors against loss, damage or forgery of paper certificates.
Dematerialisation is also easy in the maintenance of records and subsequent transactions. Knowledge of the movement of physical shares into electronic format would assist investors in handling the old stocks in an easy manner to avoid unnecessary delays. It has established cheques and timelines that have to be followed in its preparation, and clarity is significant before the process begins.
Key Takeaways
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Physical share transfers are no longer permitted, making dematerialisation mandatory for selling or trading shares on stock exchanges.
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Converting physical shares into demat improves safety, reduces paperwork, and simplifies future transactions and corporate actions.
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The dematerialisation process follows a defined workflow and depends on accurate documents, signature matching, and issuer verification.
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Once shares are credited to a demat account, physical certificates become legally void and no longer hold ownership value.
Step-by-Step Procedure to Convert Physical Shares to Demat
Holders of share certificates in the physical form can convert their shares into dematerialised form by following some simple steps as given below:
Step 1: Opening a Demat Account
This is the most essential and the very first step required to convert share certificates into dematerialised form, as you will need a Demat account to hold your share/shares.
Find below the steps to open a Demat Account.
1. Contact a Depository Participant who is registered with SEBI
2. Fill out an account opening form
3. Submit your KYC documents along with a filled application form to your DP
4. Sign an agreement along with a schedule of charges with the DP/bank. This agreement will provide and mention the responsibilities and the rights of both the account user and the DP
5. You will then be provided with a Demat account number, using which you can start trading in the stock markets with your Demat account
Step 2: Process of Transferring Physical Shares Into Dematerialised Form
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Obtain DRF: Request a Dematerialisation Request Form (DRF) from your DP. Note: If shares are from different companies, you must use separate DRF forms for each.
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Submit Certificates: Fill the DRF and submit it with the original physical certificates. You must write "Surrendered for Dematerialisation" across the face of each certificate to prevent misuse.
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Verification & Credit: The DP verifies the request and sends it to the company’s Registrar and Share Transfer Agent (RTA). After successful verification, electronic shares are credited to your account. This process typically takes 2 to 4 weeks.
Step 3: Dispose of Physical Share Certificates
The physical shares certificates can be destroyed. However, you should only do so after the shares have been successfully credited to your Demat account and you have received confirmation from your DP.
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In-Process: During the conversion, the RTA (not the investor) is responsible for the formal cancellation and destruction of the physical certificates once they are verified as authentic.
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Post-Conversion: Once credited, the physical certificates are legally void and cannot be used to claim ownership.
Also Read: What is Share?
Disadvantages of Using Physical Share Certificates for Trading of Shares
Some of the disadvantages of trading or holding shares using physical share certificates are listed below:
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Need to be stored safely and securely under lock and key, as physical share certificates are exposed to the risk of theft and loss. Share certificates can also suffer from wear and tear damage.
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Transactions involving physical share certificates are time-consuming and tedious, requiring multiple steps, whereas transactions involving shares in dematerialised form can be completed in a matter of seconds. This also reduces its liquidity.
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Physical certificates generally involve higher administrative costs. For instance, the transaction costs, such as stamp duty is higher for physical certificates. Additionally, replacing lost or damaged certificates also involves higher costs.
Conclusion
Knowing how to convert the physical shares to demat is useful because it helps minimise the operational risks and streamline portfolio management. Although the conversion process includes document checks and waiting times, it has a definite structure. The use of correct record preparation and prompt response to questions eliminates unnecessary delays. Moreover, after dematerialisation, shares can be handled more conveniently for transfers, sales, and corporate transactions.
