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The Indian stock market has grown to offer more facilities and straightforward trading to modern investors. Investors had to physically be present at the stock exchanges to purchase and sell shares when the Indian stock market employed the open outcry mechanism. The basis for buying and selling was the use of actual share certificates that proved ownership of the shares. However, the practice was rendered obsolete by the development of internet trading and technologically sophisticated trading platforms.

You can only trade and invest in shares that are in the dematerialized (Demat) format as of right now, according to the rules established by the Securities and Exchange Board of India (SEBI). This action was done primarily to make it simpler to purchase, sell, and transfer company shares. The change has however raised a crucial issue, leading investors who still possess physical share certificates to search for a method for converting physical shares to Demat. The procedure is crucial for dematerializing share certificates and enabling ongoing investment. You can use this blog as a reference to learn everything there is to know about Demat accounts and how to convert physical shares to Demat India.

What is a Demat Account?

Demat accounts were first launched in India by the Securities and Exchange Board of India (SEBI) in 1996, revolutionizing investing by turning it into a digital process. A Demat account was one of the most significant new elements established by SEBI.

Dematerialization, or “demat,” is the process of converting physical securities into electronic form. Because of this, a trader can hold, transfer, and transact securities using a Demat account without having to deal with physical securities. Trading as a result is now a lot safer, faster, and more effective way to execute trades and store assets.

Explanation of the Dematerialization Process?

Before the advent of internet trading, stock certificates were physically possessed by the public. Dematerialization, a procedure that transforms your physical shares into electronic form, is now required by SEBI in order to convert physical share certificates to virtual shares. There are four main parties involved in this: the depository, the issuer, the beneficial owner, and the depository participant.

A depository participant (DP) is a representative of the depository who acts as your point of contact with the depository for the purposes of maintaining and managing your Demat account. Depository services can be accessed through a DP in the same way that banking services can be accessed through a branch. Any financial service provider that complies with SEBI’s rules, such as financial institutions, banks, state financial companies, stockbrokers, NBFCs, etc., can register and perform as a DP.

You have the choice of dematerializing in a depository or storing your shares and bonds digitally. An organisation known as a depository is one that stores investor securities (such as shares, debentures, bonds, government securities, mutual fund units, etc.) in electronic form at the request of investors. National Securities Depository Ltd. (NSDL) and Central Depository Services (India) Ltd. (CDSL) are the depositories that are registered with SEBI and have operational licences in India (Securities and Exchange Board of India). Dematerialization is similar to saving your money in an account. Electronic book entries replace your physical share certificates in Demat form; buying of shares are represented as credits and sales are reported as debits in your Demat account.

Here are a few dematerialization guidelines before you learn how to transfer physical shares into Demat online:

  • A firm can issue shares in electronic form by revising its Articles of Association by a special resolution in the general meeting during the dematerialization process.
  • Therefore, private businesses must register with both NSDL and CDSL. The issuer must adhere to the depositories’ registration requirements, which differ from their own.
  • Following registration, the depositories assign an individual ISIN to every share. A 12-digit identifier called an ISIN is used to identify various securities, including shares, bonds, etc.
  • Depository services are only available to the firms via an intermediary. The issuer must arrange for Demat connection from depositories if it wants to transfer the shares that have been dematerialized.

Why is Dematerialization Important? What are the Advantages of Dematerialized Shares

The regulation that SEBI issued requiring investors to convert every physical share certificate into electronic form is the major reason why investors are looking for information on how to convert physical shares to Demat online. The route SEBI is taking is not predicated on assumptions, but rather on reliable research that shows this approach has several advantages versus maintaining actual share certificates. Once an investor understands how to do so, it will offer the advantages listed below:

  • Security: Dematerialization reduces the possibility of shares being stolen, falsified, or misplaced, hence enhancing the holding’s security. Theft is no longer an issue because they are kept in safe depositories.
  • Comfort: Due to the electronic nature of dematerialized shares, issues with storage and upkeep are no longer an issue. You won’t have to worry about misplaced or damaged credentials any longer.
  • Functionality: All sharing records are kept online and electronically. As a result, you may use the internet to access dematerialized shares practically anytime and almost anywhere.
  • Cost-effectiveness: Since electronic trading eliminates the need for time-consuming documentation, less money is spent.
  • Adaptability: Dematerialization boosted access for small investors by increasing flexibility. Now, there are no more limitations on the amount of shares that can be purchased or sold.

Difference Between Dematerialization and Re-materialization

Rematerialization is the process of converting electronic shares back to physical certificates, whereas dematerialization is the process of turning physical shares into electronic form. You can choose to rematerialize your shares whenever you want, and it takes 30 days to complete. Rematerialized shares, however, lack liquidity because they can’t be exchanged. Understanding the distinction between dematerialization and rematerialization is crucial to understanding how to convert real shares into Demat online.

  • Shares that are rematerialized have different numbers whereas shares that are dematerialized have unique ISINs.
  • Re-materialized shares are exchanged physically, whereas de-materialized transactions take place online. Rematerialized shares cannot be exchanged according to the most recent SEBI regulations.
  • While particular corporations keep rematerialized shares, depositories hold dematerialized shares.
  • Investors must pay maintenance costs with yearly expenses ranging from Rs. 500 to 1000 since electronic shares are kept in safe depositories. Rematerialized shares that do not require maintenance are kept in storage by individual investors.
  • The security of the securities is the primary distinction between dematerialization and re-materialization. Dematerialized shares are less likely to be stolen, but physical certificates are more straightforward to fabricate or steal.

*CLAIM YOUR UNCLAIMED SHARES WITH MUDS & know how to claim shares from IEPF.

Dematerialize Your Physical Share Certificates With MUDS

It has become essential to dematerialize share certificates if you don’t want to lose ownership of the shares. Before selling or transferring shares of a corporation that you now have in physical form, you must first convert those shares into an electronic format. Dematerialization is the process of transferring a company’s physical shares into an electronic format (Demat). Before submitting a request for the conversion of your physical shares, you must first register a Demat account with a Depository Participant (DP). To better comprehend how to convert physical shares to Demat online, it is crucial that the stockbroker you select has expertise and has no additional fees.

What is the Process to Convert Your Physical Shares into Demat of Shares

You must adhere to the dematerialization procedure created by the Securities and Exchange Board of India in order to learn how to convert physical shares to Demat online. Opening a Demat account is the first stage in the two-step procedure, which is followed by submitting a request for the dematerialization of shares.

1. Open a Demat Account

  • Step 1: Open a Demat and trading account fast and easily on the website of your favourite DP.
  • Step 2: Go to their website and select the “Open a Demat and Trading Account” option.
  • Step 3 is to complete the application.
  • Step 4: Upload scanned copies of all the required Know Your Customer documentation (KYC).
  • Step 5: Sign the charges and the agreement with the DP. The obligations and liabilities of the account holder and the depository participant are set out in this agreement. As a result, it’s crucial to read them completely before signing.
  • Step 6: The DP will handle your application after receiving the necessary documentation.
  • Step 7: Upon successful acceptance of your Demat and trading account applications, you will be provided with a Demat account number, a special user ID, and a password to access your trading account.

2. Raise a Request 

You must submit a request to convert your physical share certificates into the dematerialized format once you’ve opened a Demat account. You can raise a dematerialization request with your DP by taking the actions outlined below:

  • Step 1: Request a demat of shares Request Form from your DP (DRF).
  • Step 2: Complete the DRF with all necessary information and sign it. Send your DP the properly filled out form and your actual share certificates. Each physical share certificate must state “Surrendered for Dematerialization.”
  • Step 3: After receiving the DRF and the physical share certificates that have been surrendered, your DP will process your request.
  • Step 4: Subsequently, your DP would send the dematerialization request to the Registrar and Share Transfer Agent designated by the concerned firm (RTA).
  • Step 5: Following approval of the dematerialization request, the physical share certificates are destroyed and the appropriate number of shares are credited to your Demat account.

What are the Documents Required to Convert Physical Share Certificate to Demat

You become a part-owner of the corporation that issued the shares when you possess the actual share certificates. But in order to dematerialize a physical share certificate, certain paperwork must first be supplied in order to form a Demat account and then file the appropriate request. The following are the necessary paperwork to transfer physical shares to Demat India:

  • Identity documents featuring photos, such as your driver’s licence, PAN card, voter ID card, and Aadhaar card.
  • Your driver’s licence, passport, landline phone bill, energy bill, apartment maintenance bill (if applicable), copy insurance, gas bill, and other documents serving as proof of residency are acceptable.
  • Your evidence of bank account will be the passbook or account statement from your bank (must be no more than three months old).
  • Your evidence of bank account will be the passbook or account statement from your bank (must be no more than three months old).
  • The genuine copy of the stock certificates you really own. The information on the share certificates must be clearly visible and in good shape.
  • Form for Dematerialization, properly completed. For shares of several firms, you must be sure to utilise distinct forms. For instance, if you own 5 shares each of the businesses XYZ and PQR, two different forms must be filled out for each.
  • In the physical share certificates, each paper share must be marked “Surrendered for Dematerialization.” Get an acknowledgment slip for the shares you are surrendering, don’t forget.

The physical certificates are invalid and destroyed by the corresponding firms once you have filed all the paperwork to convert physical shares to Demat, and new electronic shares are issued. As soon as these shares are shown in your Demat account, you can trade by purchasing or selling additional shares as needed.

Remember that you cannot use a copy of a physical share certificate to prove your ownership of the shares if you own one. From from point on, any trading activity using the hitherto owned physical share certificates will be regarded as unlawful. You will only be able to claim ownership of the shares through transactions made in your Demat account. You must thus protect your Demat account and keep your Demat account number in mind.

Final Word

Since moving to an electronic format, the Indian stock market no longer recognises physical share certificates as being valid. Even if you are still the owner of the shares, you cannot trade using the paper shares certificates if you own the physical share certificates. You must register a Demat account and submit a dematerialization request in order to transform your physical stock certificates into an electronic version before you may trade them.

Dematerialization may appear to be a lengthy process, yet user involvement is low. It will probably take two to three weeks to complete the conversion of physical share certificates into a Demat format. You are free to sell or transfer your shares whenever you choose once your Demat account has been credited.

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    Sir, what is the last date for conversion of physical share certificates into demat.
    I am having a few share certificates in joint name with my wife. She is the first holder and I am the second holder. Having a certifiate as I am the first holder and my wife is second holder. For transposition of it, who has to sign first and the second in demat form. Kindly reply at the earliest and oglibe.

  2. preetam says:

    I am based in usa. I have stock in a company in india. They are still in physical form. When i tried to demat them, they started asking for adhaar card or OCI card. I am working on my oci card. Will I be able to demat my stock because I am reading that the last date to demat was mar31, 2023.

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May 2024