When you open a demat account, it is important to gain an understanding of the working of accounts in terms of shares transmitted and transposed. This is especially crucial to know in case shares have been bequeathed to someone by way of a will, or the names of shareholders change due to some other reason. You should know the meaning of transmission and transposition of shares. Demat account holders often get confused between the two, and this can lead to misconceptions for your shareholdings in the future.
Today, if you want to own shares, you need to open a demat account for electronic storage of the same. Even if, say, your grandmother has bequeathed shares to you in physical form after her demise, these have to be dematerialised and placed in a demat account in digital formats. The Securities and Exchange Board of India (SEBI) has mandated this. Regarding shares, it is vital that you are aware of certain terms which affect how shares are used in the future. Transposition of shares is simply the interchanging of the name order of shareholders (in case of shares jointly held). To put it plainly, it is the rearrangement of names on the shares. In case the names of shareholders must be transposed, then it is necessary to hold the shares in demat formats.
There are a number of ways that you can buy and hold shares in a demat account. Your demat share account may hold stocks that you have recently bought on the stock exchange, or may hold shares allotted to you by a recent IPO subscription. If you wish to go in for any upcoming IPO, it is sensible to open a demat account. Now, coming back to the transmission of shares. The transmission of shares is essentially when the titles of shares get transferred (to another name) due to succession and inheritance. Hence, if you are bequeathed shares in a will by your aunt, then your aunt’s name, currently on the shares held, will be changed to your name as you become the new owner of the shares.
There are some considerations to note regarding the transmission and transposition of shares. Demat account holders should be aware of certain aspects that pertain to both processes:
When you open a demat account, you may think there is nothing to it. However, you should be aware of certain terms and regulations pertaining to these, should you ever come across them in future. You may find the knowledge you need at Motilal Oswal, a reputed broker in India. While you are doing this, you can think of applying for any upcoming IPO too.
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