How to Convert Physical Shares into Demat Form?

Key Highlights

• Converting physical shares into demat involves depositories, issuers, beneficial owners, and depository participants.

• Demat form offers convenience, security, cost-effectiveness, and flexibility.

• It contrasts with re-materialisation, which converts digital securities back to physical form.

• It requires investors to open a demat account and undergo verification.

The Securities and Exchange Board of India (SEBI) has long insisted that all physical shares be converted to the digital format. This initiative aims to expedite and streamline the settlement process, eliminate fraud committed by share transfer agents, and pose challenges for shell companies dealing with the electronic mode.

According to SEBI, this electronic bookkeeping will bring transparency to the capital markets. The tax authorities will find it easier to track shareholders and identify the real beneficiaries. Keep in mind that the lack of transparency has been bothering the government for quite some time.

If you still have physical share certificates, it is time to convert them to demat now. This can be done easily in a matter of two to three weeks.

What Is Dematerialisation?

Dematerialisation is the process of converting paper shares and securities into digital ones, making it easier and cheaper to buy, sell, transfer, and track investments. Digital securities are stored at Central Depository Services India Limited (CDSL) and National Securities Depository Limited (NSDL), registered with the Securities and Exchange Board of India (SEBI). To dematerialise physical shares, users must open a Demat account, which functions as a digital wallet for investments.

How to Convert Physical Shares into Demat Form

Here is a step-by-step guide on how to convert physical shares into demat.

1. Open a beneficiary account with a Depository Participant (DP):

The first step is to open a demat account with a DP. A DP is an intermediary between you and the depositor. The DP is necessarily registered with SEBI. You could open a demat account even with your bank, which can also function as a DP. Ensure that the names in the demat account and the physical share certificates match.

2. Fill out the request form:

Fill out a dematerialisation request form once your demat account is opened. Take your physical shares with you and surrender them to your DP while filling out the form. Do not forget to write ‘Surrendered for dematerialisation’ on every share certificate.

3. Submit documents:

Once you submit all the documents, your DP will send an email or SMS to the Registrar and Transfer (R&T) agent. The R&T agents have been entrusted with the job of maintaining your records.

4. Dematerialisation registration:

A dematerialisation registration number will be generated. This will be fed into your dematerialisation request form and sent to the T&R agent with your original share certificates.

5. Validity check:

The T&R agent will check the authenticity of the documents you have submitted.

6. Name change:

The process to replace your name with your DP’s name begins now. Also, the number of shares getting dematerialised will be recorded in the Register of Members’ account. The Register of Members is the repository that stores the details of the shareholders.

7. Acknowledgement:

Once this process is completed, an acknowledgement is generated from the Register of Members saying the requisite changes have been made. The number will be forwarded to your DP.

8. Shares credited:

Your dematerialised shares will get credited into your demat account.

Read more: How to Transfer Shares from One Demat Account to Another

Documents Required for Dematerialisation

Here are the documents required for Dematerialisation of shares:

• Dematerialisation Request Form (DRF)

One of the most important documents required for dematerialisation is the Demat Request Form. You have to fill this form with correct details, sign it, and submit it to the Depository Participant (DP).

• Physical Share Certificates

Original physical share certificates are necessary for dematerialisation. These certificates need to be surrendered and verified before the conversion into electronic form.

• KYC Documents

You are required to submit KYC documents like a PAN card, identity proof, and address proof as demanded.

• Supporting Documents

You will have to give the supporting documents in case if there are any discrepancies in name or signature.

Are There Any Cost Implications?

There are certain fees and charges associated with converting physical shares into demat form. You need to be aware of these costs that typically include:

• Dematerialisation charges: This is the fee for the actual process of converting physical share certificates into electronic form. This varies basis the depository participant or broker involved.

• Courier charges: Some brokers or DPs may charge an additional courier fee for sending documents to the Registrar and Transfer Agent (RTA).

• Goods and Services Tax (GST): An 18% GST is applicable on the dematerialisation charges and courier fees.

• Broker charges: Some brokers may levy extra fees for processing the dematerialisation request. Thus, you should reach out to your broker to check for any such charges.

• Annual maintenance charges: After dematerialisation, maintaining a demat account incurs an annual maintenance fee.

• Transaction charges: Some brokers may also charge fees on transactions involving dematerialised shares; however, SEBI guidelines generally do not mandate charges for account opening or custody.

Thus, while there are no charges for account opening or custody, the dematerialisation process itself could involve nominal fees per certificate, courier charges, applicable GST, and ongoing annual maintenance fees for the demat account.

As an investor, you should be prepared for these costs when converting physical shares into demat form. It is recommended to check with your broker or DP for the exact fee structure applicable to you.

Common Issues When Converting Shares and Tips to Avoid Them

• Name mismatch

The name on the physical share certificate must exactly match the name on the demat account. This includes the sequence of names in case of joint holdings. If the name has changed (e.g., due to marriage), notarised documents like a marriage certificate or affidavit are required to prove identity.

• Joint holding discrepancies

If shares are jointly held, the order of names on the certificate must be the same as in the demat account. You cannot convert single-name physical shares into a joint demat account or vice versa.

• Deceased joint holder or sole holder

If any joint holder is deceased, a notarised death certificate and transmission-cum-dematerialisation form must be submitted. If the sole holder is deceased, the inheritor must approach the Registrar and Transfer Agent (RTA) with relevant documents to get shares transferred in their name before dematerialisation.

• Corporate actions not updated

If corporate actions like bonus issues, stock splits, mergers, or name changes have occurred since the issuance of the physical certificate, as a shareholder, you need to obtain updated certificates reflecting these changes from the RTA before dematerialisation.

• Unclaimed dividends and IEPF issues

Dividends unclaimed for over seven years may have been transferred to the Investor Education and Protection Fund (IEPF), and shares may also be transferred there. You need to claim these from IEPF before proceeding with the share conversion.

• Shares not registered in shareholder list

Sometimes, dematerialisation requests are rejected because the shareholder’s name does not appear in the company’s records, often due to incomplete or outdated registration.

• Forgery or damage risks with physical certificates

Physical certificates are prone to loss, damage, or forgery, which can complicate the dematerialisation process. To avoid these hassles, it is critical keep applicable legal documents like forms, affidavits, etc., handy and updated. As a shareholder, you must choose a reputed DP or broker to assist you with the process and help you avoid these common pitfalls.

Conclusion

The market watchdog believes that electronic bookkeeping is far easier and reduces the risk of forgery. Moreover, it will boost investor confidence and bring much-needed transparency into the securities market. So, this is the right time to open your demat account.

Many people believe that converting physical shares into demat is a cumbersome process. But that is not true. The process is fairly simple and can be completed within two to three weeks. Once the shares are dematerialised, it results in more convenience for investors. The buying and selling of shares could then be done in seconds. The demat form also guards against any physical damage to the shares.

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