There was a time when people used to invest in physical assets and they find gold as the safest medium to pool their savings to secure a better future. But with time, things changed and so do the priorities of people who wants to invest their hard-earned money for the better returns. Increase in the financial literacy, people started investing in physical shares of renowned companies hoping to get their savings multi-fold. Equity shares since then because of liquidity and readily available open market became one of the best options to invest but came with greater risks because of its volatility.
Earlier people invested in physical shares and kept them as a long-term investment for their saving to grow. But with the time and the changes in law dematerialisation of shares considered as the need of an hour had become mandatory. Dematerialisation means conversion of physical shares into the electronic format, which are then held in a demat account opened with depositories.
The procedure for dematerialisation is simple as the investor first has to open a demat account with one of the depository participants and need to surrender its physical share certificates for the purpose of conversion. Holding securities in electronic form eases the transfer of share in open market and also provides a better insight in the form of easy control. But this procedure is not as simple as it seems.
Let’s discuss one of the problems that can come while getting your securities dematerialised i.e., when the physical shares are with the joint holders and the need arise to convert it into the electronic form. Clients are advised to check if the company whose shares they are holding have a Depository participant segment or not and if not, then they have to check for their R&T Agent whether the same is working as a DP or not. If all the answers are no, then only they are advised to open their demat account with some other Depository participant. This is because there may arise multiple ambiguities between the R&T Agent and DP during the process of Dematerialization related to the records and documents of client which have not been shown nor asked by either of the parties. There can also be following cases in this scenario:
Case 1: When the shares are in joint names and all the holders are alive, so the best advice is that the client can open a demat account in joint name (provided the maximum holders can be 3) and file the dematerialisation request form(DRF) with your concerned depository participant for the purpose of conversion and also needs to surrender original share certificates or you can first ask the R&T Agent of the company whose shares you are having to transfer it in name of any of the joint holder and the securities will then be transferred in his/her demat account(No need to open joint demat account as the procedure of opening individual demat account is much simple as compared to opening of joint demat account). The point to be noted here the Demat account has to be opened in the same name sequence as appearing in the physical share certificates otherwise your depository participant will ask you to submit “Transposition form.” This thing can be understood by the following example:
- If Varun and Arun are the joint shareholders of SBI shares which they need to dematerialise
- Names on the share certificate are Mr Varun and Mr. Arun, where Mr Varun is the first shareholder and Mr. Arun is the second. But the names in the jointly held demat account are Mr. Arun and Mr. Varun where Mr. Arun is the first holder and Mr. Varun is the second.
- In this case, Transposition form shall be submitted to the DP signed in the sequence of the names appearing in the Demat account i.e., it needs to be first signed by Mr. Arun and then Mr. Varun
NOTE:
- You need to file different Dematerialization request form (DRF) for every share certificate.
- One thing that needs to be kept in mind is that since there can be a time difference between client purchasing physical share certificates and the time when you are getting it surrendered for the purpose of dematerialization, so you need to keep your KYC updated with R&T Agent before submitting any forms and surrendering original share certificates. If not updated, it can result in the signature mismatch and also R&T Agent rejecting your application of Dematerialization.
Case 2: When the shares are in joint names but one or more of joint holder is dead and remaining surviving shareholder(s) wants to dematerialise the securities in their name, for which they need a demat account in the name of one of surviving shareholder or joint demat account in the name of remaining shareholders.
For this they have to:
- Either apply to their concerned DP for deletion of name of deceased member by filing the ‘Transmission Form’ with DRF and surrender of original share certificates. The concerned DP shall forward the documents to Issuer company/R&T agent who after being satisfied shall update the records and process the dematerialization procedure.
- Or they can first apply their R&T agent to transmit the shares in the name of surviving shareholders and delete the name of deceased shareholder from their records and give fresh share certificates to the applicant. Once transmission is done, they can file Dematerialization request forms with their DP and the conversion can be done hassle free.
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(Author can reached at aayushiagarwal91@gmail.com)
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