The technological advancements in the Indian financial market have led the stockholders to move on from the era of physical shareholding. All the new shares issued in the market are in digitised form and the trading and transfers also happen digitally. This also makes the tracking process of the stock market easier for market regulators like SEBI. But What about the stockholders who still own physical share certificates? How can they participate in the trading and exchange of shares? Read on to find out answers to such questions.
Conversion of Physical Shares: Dematerialisation
Physical shares are hard to maintain and keep up for a long time. This is the reason why the market has moved towards digital shareholding. Digital shares are easy to keep up and maintain for a long time. The records are available online and thus, there is no fear of losing or misplacing shares. For existing physical shares, the investors can use the process of Dematerialization. In this process, the physical shares existing with an investor are converted into digital form. The investors get the same value of a share in digital form and the existing physical share certificate becomes redundant. The basic idea behind conversion is to make the process of buying, selling, or transferring stocks simple through online transactions. Through this procedure, all the securities owned by the investor can be stored in an electronic form.
Need for Dematerialisation
Keeping up physical shares becomes hard and multiple papers related to shares must be kept safe. There is a possibility of one or more of them being lost or mutilated over the years. Losing any share document like that simple means losing the invested capital. Even getting duplicate share certificates for lost or mutilated shares requires time and money. Also, the transfer of shares in physical forms also attracts stamp duty that must be paid. Whereas digitised shares don’t need such cost or hassle of safe upkeep. An investor can keep the record of shares safe with him on multiple devices so there are no chances of shares being lost. Also, credits and bonuses associated with dematerialised shares are transferred directly to the account of the shareholder. This removes the possibility of any loss during the transit of shares. All these reasons are enough to make any Investor move on to the digital form of shares rather than keeping physical share certificates.
Characteristics of Dematerialisation Process
- Dematerialisation process generally takes around 30 days. If the process is taking too long then the investor can contact his DP (Depository Participant) to understand the reason behind the delay. If he doesn’t get satisfactory information then he can raise the issue with the complaint cell of CDSL or NSDL.
- One can also convert his Demat holdings/digital shares into physical form. It is done by submitting a Rematerialisation Request Form (RRF) through the DP. This process is just the opposite of Dematerialisation. Post receiving such a request from the DP the share company’s RTA will issue physical share certificates to the shareholder. in the same manner as Dematerialisation.
- A trader/investor is allowed to open more than one Demat account with a similar name and DP or with various DPs. For keeping multiple accounts, the financial specialist needs to adhere to the KYC standards by taking Proof of Identity and Address as stipulated by SEBI. The investor should also share their PAN number while opening the Demat account.
Other Advantages of Dematerialisation
Easy and Convenient Processing
A Demat account removes the necessity of the investor to be present at the broker’s place to carry out a transaction. The digitised shares can be accessed from any place through a mobile or computer. This ensures convenience and saves a lot of time for an investor. Earlier with physical shares, the investor needed to present the original share certificate to carry out any transaction related to the shares.
Safe and Secure Fund Transfer
A digitised share account linked with the bank account ensures the safe transfer of funds for the investor. In the case of physical share certificate, the transfer would require physically transferring shares and taking the money in form of cash or cheque. This was then manually transferred to the bank account all this process used to take time. Also, the chances of theft, fraud, or damage were higher in this scenario.
Nomination Facility for Demat Account
Demat accounts consisting of digital shares also allows the user to grant nomination or the right to operate the account to a nominee. A shareholder can simply name a nominee to operate his demat account in his absence. This process ensures that the investors can operate his account through a nominee as well.
Availing Loan Facility against Securities
The Demat account for digitised shares can also help in availing loans against the shareholdings. This can be done from the convenience of home without visiting the banks or financial institutions with physical share certificates. The dematerialised shares can be used as collateral to apply for loans.
Receiving Corporate Benefits
A Demat account simplifies the process of sharing corporate benefits like dividends, interest, or refunds with shareholders for the companies. The chances of misplacing or sending the wrong amount will be less as the transactions are completely online and one-to-one directly. All the benefits associated with the shares get directly credited into the Demat account of the shareholder. Additionally, this is also used to share other benefits like stock splits, rights shares, and bonus shares.
Procedure of Dematerialisation
- To start Dematerialization of physical shares, an investor must have a Demat account. If the investor doesn’t have a Demat account, then they should open it before starting Dematerialisation of shares.
- For conversion of physical shares, a DRF or Dematerialization Request Form must be submitted with the physical share certificates to the DP ( Depository Participant).
- The DP will process this request form along with the share certificates and verify it with the registrars and RTAs of the company.
- Post the request form’s approval, the physical share certificates will be destroyed and equivalent digital shares will be generated and a confirmation of the same will be given to the depository.
- The depository will inform the regarding Dematerialisation to the DP and the digital shares will start reflecting in the shareholder’s Demat account.
- The total process might take around 15 to 30 days for completion after the date of submission of the Dematerialisation request.
The process of Dematerialisation simplifies a lot of work for modern-day investors. The modern investor wants the work to be done with a touch of a finger. Dematerialisation process ensures that for investors. However, the process could be time-consuming for an investor if he doesn’t have thorough knowledge regarding conversion. Also, it requires liaising with DP from time to time. Hence, it is advised that the investors consult a reputed financial consultant who can carry out the process on their behalf. This will save the investor from spending time and effort.