How to Convert Physical Shares into Demat: A Clear and Confident Guide

If you hold physical shares, you may miss out on the convenience and security of holding them electronically. Converting physical shares into demat form is a simple process that can be done with the help of your broker. In this post, we’ll be discussing the step-by-step process of converting physical shares into demat form, including the necessary documents, fees, and timelines.

We’ll also cover some common mistakes to avoid during the conversion process. By the end of this post, you’ll clearly understand how to convert physical shares into demat form and be able to do so with ease.

Understanding Physical Shares and Demat Account

When a person purchases shares of a company, they are issued a physical share certificate by the company, which represents their ownership of the shares. Physical shares are tangible documents that can be held in hand and are proof of ownership. However, physical shares can be cumbersome to handle and can be lost, stolen, or damaged, which can result in significant financial losses.

To overcome these challenges, the Securities and Exchange Board of India (SEBI) introduced the concept of dematerialization of shares. Dematerialization refers to the process of converting physical shares into electronic form, which can be stored in a demat account.

A demat account is an electronic account that holds securities such as shares, bonds, and mutual funds in electronic form. It is similar to a bank account, where the account holder’s securities are credited or debited as per their transactions. The demat account eliminates the need for physical share certificates and provides a secure and convenient way to hold securities.

To convert physical shares into demat form, one needs to open a demat account with a Depository Participant (DP), who acts as an intermediary between the investor and the depository. The depository holds the electronic records of the securities, and the DP facilitates the dematerialization process.

Once the demat account is opened, the investor needs to submit a request to the DP to dematerialize their physical shares. The DP will verify the details and send the request to the depository for processing. The depository will then credit the dematerialized shares to the investor’s demat account.

In summary, physical shares and demat accounts are two different ways to hold securities. Physical shares are tangible documents that represent ownership, while demat accounts hold securities in electronic form. Dematerialization of physical shares is the process of converting them into electronic form, which can be stored in a demat account. Opening a demat account and dematerializing physical shares provides a secure and convenient way to hold securities.

The Need for Converting Physical Shares into Demat

As the world moves towards a more digital future, the stock market is also evolving. In India, the Securities and Exchange Board of India (SEBI) has mandated that all shares be held in an electronic format, also known as dematerialisation. This means that physical share certificates are no longer valid and must be converted into a demat form.

There are several reasons why converting physical shares into demat is necessary. Firstly, it allows for easier and faster trading of shares. With demat shares, the transfer of ownership is done electronically, eliminating the need for physical share certificates to be transferred from one person to another. This reduces the time and costs associated with trading physical shares.

Secondly, demat shares provide a more secure way of holding shares. Physical share certificates can be lost, stolen or damaged, which can result in a loss of investment. With demat shares, the risk of loss or damage is significantly reduced as they are held in electronic form in a secure depository.

Thirdly, demat shares are more convenient for investors. They can access their demat account online and view their holdings and transactions at any time. This provides investors with greater transparency and control over their investments.

In summary, the need for converting physical shares into demat is driven by the evolving nature of the stock market towards electronic format and the benefits that come with it. It is a necessary step for investors to take to ensure their investments are secure, convenient, and easily tradable.

Role of Broker and Depository Participant

When it comes to converting physical shares into demat, the roles of the broker and depository participant (DP) are crucial.

A broker is an intermediary between the investor and the stock exchange. They help investors buy and sell shares on the stock exchange. When an investor wants to convert their physical shares into demat, they need to approach a broker and open a demat account with a DP.

A DP is a registered member of a depository, which is an organization that holds securities (shares, bonds, etc.) in electronic form. There are two depositories in India: Central Depository Services Limited (CDSL) and National Securities Depository Limited (NSDL). The DP acts as an agent of the depository and provides services related to the dematerialization of securities.

To convert physical shares into demat, an investor needs to open a demat account with a DP. The DP will then send a request to the company’s registrar and transfer agent (RTA) to convert the physical shares into electronic form. Once the conversion is complete, the shares will be credited to the investor’s demat account.

Some brokers, like Zerodha and Upstox, also offer DP services. This means that investors can open a demat account with these brokers and avoid the hassle of dealing with a separate DP.

It is important to note that investors should choose a broker and DP carefully. They should look for a broker and DP that are registered with SEBI and have a good reputation in the market. Additionally, investors should compare the fees charged by different brokers and DPs before opening a demat account.

Steps to Convert Physical Shares into Demat

Converting physical shares into demat is a simple process that requires a few steps. Here are the steps to convert physical shares into demat:

1. Open a Demat Account: The first step to convert physical shares into demat is to open a demat account with a depository participant (DP). A DP is an intermediary between you and the depository firms such as CDSL or NSDL, and is registered with SEBI. The demat account can be opened online or offline by submitting the necessary documents and fulfilling the KYC requirements.
2. Dematerialisation Request Form (DRF): Once the demat account is opened, you need to fill up the Dematerialisation Request Form (DRF) to convert the physical shares into demat form. The DRF is available with the DP or can be downloaded from the NSDL or CDSL website. The DRF needs to be filled up with accurate details such as the name of the company, ISIN, quantity of shares, folio number, etc.
3. Submit the DRF: After filling up the DRF, you need to submit it to your DP along with the physical share certificates. The DP will verify the details on the DRF and the physical share certificates and then forward it to the Registrar and Transfer Agent (RTA) of the company.
4. Dematerialize: The RTA will then verify the details and dematerialize the shares. The dematerialization process takes around 15-20 days from the date of submission of the DRF. Once the shares are dematerialized, they will be credited to your demat account.
5. Verify the Demat Account: After the shares are credited to your demat account, you should verify the details such as the name of the company, ISIN, quantity of shares, etc. If there is any discrepancy, you should inform your DP immediately.
6. PAN Card: It is mandatory to provide your PAN card details while opening a demat account. The PAN card details should be accurate and match the details provided in the DRF.
7. Time Limit: It is important to note that there is a time limit for converting physical shares into demat. As per SEBI guidelines, physical shares should be converted into demat within 15 days of the date of transfer. If the shares are not converted within the stipulated time, then the transfer of shares will be deemed invalid.

In conclusion, converting physical shares into demat is a straightforward process that requires a few simple steps. It is important to ensure that the details provided in the DRF are accurate and match with the physical share certificates. By following the above steps, you can convert your physical shares into demat and enjoy the benefits of holding shares in electronic form.

Documentation Required for Conversion

When converting physical shares into demat, certain Documents are required to be submitted to the Depository Participant (DP). The following is a list of documents that are typically required:

• Dematerialization Request Form (DRF): This form is required to be filled out and submitted to the DP. One DRF form is sufficient for up to four share certificates. If there are more than four share certificates, separate sets of DRFs need to be submitted for different companies.
• Physical Share Certificates: The original physical share certificates need to be submitted to the DP along with the DRF form.
• KYC Documents: The Know Your Customer (KYC) documents need to be submitted along with the DRF form. These documents include identity proof, address proof, and PAN card.
• Aadhaar Card: Aadhaar card is also required to be submitted along with the KYC documents.
• Passport: In case of foreign nationals, a copy of the passport needs to be submitted along with the KYC documents.
• Bonds: If the shares are pledged against any bonds or debentures, then the bond or debenture certificate needs to be submitted along with the DRF form.
• Share Transfer Deed: If the shares are being transferred to another person, then a share transfer deed needs to be submitted along with the DRF form.

It is important to note that the documents required may vary depending on the DP and the company whose shares are being dematerialized. Therefore, it is advisable to check with the DP beforehand to ensure that all the necessary documents are submitted.

Dealing with Lost Share Certificates

In case an investor has lost their physical share certificates, they must take immediate action to prevent any unauthorized transfer of shares. The investor must inform the company’s registrar and share transfer agent (RTA) about the loss of share certificates. The RTA will then mark the lost certificates as ‘duplicate’ in their records to prevent any further transfers.

To obtain a duplicate share certificate, the investor must file an FIR with the police and submit a copy of it to the RTA. The investor must also provide an indemnity bond, which is a legal document that indemnifies the company and its RTA from any losses arising from the issue of duplicate shares. The indemnity bond must be signed by the investor and a surety, who is usually a person of repute, such as a bank manager or a gazetted officer.

Once the RTA receives all the necessary documents, they will issue duplicate share certificates to the investor. The investor must surrender the duplicate certificates to their depository participant (DP) to convert them into demat form. The DP will then credit the dematerialized shares to the investor’s demat account.

It is important to note that the process of obtaining duplicate share certificates can be time-consuming and may take several weeks. Therefore, investors must ensure the safekeeping of their physical share certificates and take appropriate measures to prevent their loss or theft.

In case the physical share certificates are not found or recovered, investors can still convert their lost shares into demat form. They must follow the same process as converting physical shares into demat form, but instead of submitting the physical share certificates, they must provide a copy of the FIR and an indemnity bond to their DP.

Overall, investors must be vigilant about the safety and security of their physical share certificates and take appropriate measures to prevent their loss or theft. In case of any loss or theft, investors must inform the RTA and take necessary action to obtain duplicate share certificates.

Trading and Selling Dematerialised Shares

Once a physical share is converted into a dematerialised share, it can be traded and sold just like any other stock. To sell dematerialised shares, the investor needs to have a trading account with a broker. The investor can place a sell order for the dematerialised shares through the trading account. The broker will then execute the order on the stock exchange.

When selling dematerialised shares, the investor needs to be aware of the brokerage charges that will be levied by the broker. The brokerage charges may vary depending on the broker and the volume of shares being sold. It is advisable to compare the brokerage charges of different brokers before selecting one.

The investor also needs to be aware of the taxes that will be applicable on the sale of dematerialised shares. Capital gains tax will be applicable on the profit made from the sale of shares. The tax rate will depend on the holding period of the shares and the investor’s tax bracket.

If the investor wishes to transfer the dematerialised shares to another person, they can do so by following the standard transfer procedure. The investor needs to fill out a transfer form and submit it to the depository participant along with the dematerialised share certificate.

It is important to note that dematerialised shares can be traded only on the stock exchange. The investor cannot sell dematerialised shares in the physical market. It is also important to keep the demat account updated with the correct contact details. This will ensure that the investor receives timely updates on the status of their shares and any corporate actions that may affect their holdings.

In summary, trading and selling dematerialised shares is a simple process that requires a Trading account with a broker. The investor needs to be aware of the brokerage charges and taxes that will be applicable on the sale of shares. The investor can also transfer the dematerialised shares to another person by following the standard transfer procedure.

Understanding Market Regulators and Stock Exchanges

When it comes to investing in the stock market, it is important to understand the role of market regulators and stock exchanges. In India, the Securities and Exchange Board of India (SEBI) is the primary regulator of the securities market. SEBI is responsible for regulating the activities of stockbrokers, depositories, and other market intermediaries.

Stockbrokers are intermediaries who facilitate the buying and selling of securities on behalf of their clients. They are registered with SEBI and are required to follow certain rules and regulations to ensure fair and transparent trading practices. Investors can choose to work with a full-service broker or a discount broker depending on their investment needs and preferences.

Depositories are institutions that hold securities in electronic form. They are responsible for maintaining and updating records of securities ownership. The two depositories in India are the National Securities Depository Limited (NSDL) and the Central Depository Services Limited (CDSL). Investors need to open a demat account with a depository participant (DP) to hold their securities in electronic form.

Dematerialization is the process of converting physical share certificates into electronic form. This is mandatory for all investors who want to trade in the stock market. The dematerialized shares are held in the investor’s demat account with a DP. This process has several benefits, including reduced paperwork, faster settlement of trades, and lower risk of loss or theft of share certificates.

The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are the two major stock exchanges in India. They provide a platform for companies to list their shares and for investors to trade in those shares. Companies can raise capital through an initial public offering (IPO) by selling their shares to the public. Investors can also trade on margin, which means they can borrow money from their broker to buy shares.

Overall, understanding the role of market regulators and stock exchanges is crucial for anyone looking to invest in the stock market. By following the rules and regulations set by SEBI and working with a registered stockbroker and DP, investors can ensure a safe and transparent trading experience.

Additional Information on Dematerialisation of Shares

Dematerialisation of shares is a process of converting physical share certificates into electronic or digital form. The process is mandated by the market regulator Securities and Exchange Board of India (SEBI) and is aimed at simplifying the procedure of buying, transferring, selling, or holding shares of a company.

The issuer of the shares has to enter into an agreement with a depository participant (DP) to dematerialise the shares. The DP, in turn, opens a demat account for the investor and credits the dematerialised shares to the account. The investor can then trade the shares electronically through the demat account.

Dematerialisation of shares has several advantages over holding physical shares. It eliminates the risk of loss, theft, or damage to the physical share certificates. It also makes the purchase or sale of shares full-proof and cost-effective. Moreover, it enables accessibility to the shares from anywhere, anytime, and eliminates the need for physical delivery of shares during transactions.

To dematerialise paper shares, investors need to follow a step-by-step process that involves opening a demat account with a DP, submitting the physical share certificates to the DP for dematerialisation, and receiving credit for the dematerialised shares in the demat account.

Investors can visit the BSE India website for more information on the dematerialisation of shares. The website provides a comprehensive guide on the process, benefits, and requirements for dematerialisation.

In conclusion, dematerialisation of shares is a simple and secure process that helps investors trade shares electronically. It eliminates the risks associated with physical share certificates and makes the process of buying, selling, or holding shares more accessible and cost-effective.

Conclusion

Converting physical shares into Demat is crucial for investors who want to trade in the stock market electronically and keep their securities safe. The process involves submitting a Dematerialization Request Form (DRF) to the Depository Participant (DP) along with the physical share certificates. The DRF is then processed, and the physical shares are replaced with electronic book entries in the Demat account. Converting physical shares into Demat form offers several benefits, such as increased safety, easier trading, and lower costs.

However, investors should be aware of the charges and fees associated with the conversion process, such as the Dematerialization charges and the courier charges for sending the physical shares to the DP. By understanding the process and the fees involved, investors can make informed decisions about converting their physical shares into Demat form and enjoy the benefits of electronic trading.

FAQ How to Convert Physical Shares into Demat

What are the charges for converting physical shares to demat?

The charges for converting physical shares to demat vary from one Depository Participant (DP) to another. Generally, the charges include dematerialization charges, annual maintenance charges, and transaction charges. It is recommended to check with your DP for the exact charges before initiating the dematerialization process.

What is the last date for converting physical shares to demat?

There is no specific last date for converting physical shares to demat. However, it is recommended to convert physical shares to demat as soon as possible to avoid any inconvenience in the future. Also, it is mandatory to hold shares in demat form if the value of the shares is above a certain limit, as prescribed by the Securities and Exchange Board of India (SEBI).

How can I convert physical shares to demat online?

To convert physical shares to demat online, you need to have a demat account and an internet banking facility. You can log in to your DP’s website and fill in the dematerialization request form (DRF) online. You need to upload the scanned copy of the DRF and the physical share certificates. Once the verification is complete, the shares will be converted to demat form.

How can I transfer physical shares to another person?

To transfer physical shares to another person, you need to follow the same process as converting physical shares to demat. You need to fill in the transfer deed form and submit it along with the physical share certificates to your DP. The transfer deed form needs to be signed by both the transferor and the transferee. Once the verification is complete, the shares will be transferred to the transferee’s demat account.

How can I convert physical shares to demat of a deceased person?

To convert physical shares to demat of a deceased person, you need to follow the same process as converting physical shares to demat. You need to submit the death certificate of the deceased person along with the physical share certificates to your DP. The death certificate needs to be attested by a notary public or a gazetted officer. Once the verification is complete, the shares will be converted to demat form.

How can I sell physical shares?

To sell physical shares, you need to convert them to demat form first. Once the shares are in demat form, you can sell them through your DP’s website or through a broker. The process of selling demat shares is similar to that of selling physical shares. You need to place a sell order and the shares will be sold at the prevailing market price.