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Moving Physical Shares in Demat Mode

With demat accounts on the rise, and more and more enthusiastic investors swarming the markets, the demand for stock investment is bound to rise as the days go by. Investors are savvy these days, employing different strategies to invest and trade in the markets, and willing to take risks to take a chance on high returns. Since 2019, the market regulator, SEBI (Securities and Exchange Board of India) has mandated that all physical shares held be transformed into electronic forms. In other words, material (physical) shares have to turn into dematerial form (electronic) to facilitate security and better storage and maintenance of stock holding by investors.

Dematerialisation Demystified

Although it had been regulated by SEBI to convert your physical shares, as held in paper share certificate form, to electronic form, in other words to get them dematerialized, many folks still hold shares in paper form. Dematerialization is essentially the process of converting your physical shares into electronic formats, so they are held in an online account, a demat account. Furthermore, if you are a novice trader and want to explore investment in the stock markets today, you have to open a demat account linked to a trading account.

It isn’t at all surprising that dematerialization has come into our lives in a big way. With advancements in technology and almost every function of life available online, stock trading and investing was bound to go online too. The digital age demands that individuals take advantage of the facilities provided by technology and hold their securities safely in online digital formats. The mandates on dematerialization, based on SEBI’s 2019 ruling, state that an individual may hold shares in paper form, but in case the shareholder wishes to conduct transactions, that is, sell/buy shares, this will not be possible until those paper certificates are dematerialized. Today, there are many ways to invest in stocks, and you can also apply for any upcoming IPO. Hence, it makes perfect sense to go in for dematerialization.

Aspects of Dematerialization to Consider

Now that you know that you must open a demat account to trade your shares, and have the flexibility to do this at any time you choose, you will no doubt wish to know how to go about converting your physical shares. While the process is relatively simple, there are some aspects of dematerialization to consider:

What shares you can convert - If you hold shares in the form of paper certificates, they may be of companies that no longer exist. In such cases, you cannot convert these to demat formats. You are only permitted to convert shares of companies that are actively being traded on the stock markets currently.
Open a demat account - After you have found out that your shares are being actively transacted on the stock exchanges, you should open a demat account first. This is easy to do, and you can open one with a bank that has a demat department, or with a reliable brokerage like Motilal Oswal. Opening a demat account is mandatory if you want to convert your physical shares into electronic form, whether you wish to transact with them or not. Opening a demat account is not a challenge and you simply have to submit some documents like your PAN card and details of your bank.

Conversion of Physical Shares

Once you have successfully started a demat account, which should not take you much time, online or offline, you can begin to take steps to transform your physical paper shares into electronic format, held safely in your demat account. Here are some important points to note in the steps for conversion of your physical shares:

First, you have to submit a dematerialization request (in the way of a form). This is called the DRF, or simply, the dematerialization form. If your bank has a demat department, it can help you with filling forms and starting your demat account. Alternatively, any good brokerage like Motilal Oswal, makes the process quite seamless online. You should note that one DRF can be used to convert four physical share certificates. Furthermore, the shareholder must submit distinct DRFs for shares of different companies.
After form filling is complete, physical shares and the DRFs must be handed over to your bank demat department or a brokerage to carry out the process of dematerialization. Shareholders also have to submit KYC details in the form of documents like their PAN cards and Aadhaar cards.
All submitted documents are then sent to a transfer agent and a registrar for authorization and subsequent transfer into dematerialized formats. Once physical shares are turned into electronic forms, they begin to be displayed in the shareholder’s demat account.

Are there any costs involved?

If you wish to convert your shares into demat format, there are some costs that will have to be borne by shareholders. Typically, the conversion of each physical share certificate to an electronic format can cost around Rs. 150 - Rs. 500 for each share certificate. The costs involved with holding demat accounts are essentially levied for annual maintenance of the accounts. The range of the cost may vary, depending on individual banks and brokerages. Moreover, if your demat account is linked to a trading account, which invariably it must be if you want to buy more shares or sell your newly transformed shares, each time you trade or undertake transactions (purchase or sale of stocks), you will have to pay a fee to your bank or broker. These transaction costs/charges also vary, based on your distinctive bank or brokerage.

Be Safe While You Trade

Whether you open a demat account to invest in the ever-flourishing stock markets, or wish to invest in an upcoming IPO of a company you see future growth potential in, you need to view things in a clever way. Nowadays, everything is going digital, and in order to make the most of the convenience and security that digitized services assure, you should convert any physical shares you have into demat formats. You may be late in the day if you haven’t already done this, but it's better late than never at all. In case you want any monetary gains out of your investment, dematerialization is the only answer.

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