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How to Convert Physical Shares into Demat?

12 Aug 2021 0 COMMENT

Introduction:

Sam is in his 50s. He bought 500 shares of Reliance about 25 years back. He was pleasantly surprised when he realised that his shares had given him huge profits, much more than his expectation. So, Sam now wished to sell them. But to do so, he needed to convert them into Dematerialised form. What should Sam do to reap the benefits of this long-term investment? How can you get the shares converted into the Dematerialised form? Let's understand by first knowing what Dematerialisation is.

What is Dematerialisation?

Dematerialisation of shares is converting physical share certificates of a particular company to an electronic format. These Dematerialised shares are then held in a depository account that you open. Referring to the current stock trading norms, share Dematerialisation is required to sell or transfer your shares to another account.

Also Read: Difference between dematerialisation and rematerialisation

Why Dematerialisation?

Before the year 1997, you could hold shares in the form of share certificates. This method was inefficient and had numerous flaws. It had issues of security of share certificates, as they could be misplaced or mutilated.

An individual had to purchase the shares from a broker with a transfer form attached. The entire process took nearly 30 days and was fraught with hurdles like signature mismatch issues and payment cheques or lost share certificates lost-in-transit.

Dematerialisation of shares solved these issues. You don't have to worry about the authenticity of Dematerialised shares because each electronic record of shares is authenticated with ISIN (a system of assigning a unique number to a particular share). The problems of storage and maintenance have also been eliminated, thanks to the electronic storage system adapted for Dematerialised shares.

Additional Read: Documents Required To Open A Demat Account

Now that we know the advantages of having Dematerialised stocks let's understand the procedure of conversion-

Steps to convert shares into Demat form:

  • You should first open a Demat account with a depository through a depository participant (DP). Many of the stockbrokers usually also serve as a DP
  • After you've opened a Demat account, you'll need to send your DP a completed Dematerialisation Request Form (DRF) along with your physical share certificates
  • If you own shares of more than one company, you must submit a completed DRF for each company as well as the relevant share certificates
  • DP will review both the form and the physical share certificates to check whether everything is in order
  • You will receive a DRN (Dematerialisation Request Number) as an acknowledgement while DP is processing your request
  • The DP then sends your request to the Registrar and Share Transfer Agent (RTA) of the company of which you hold shares in the physical share certificates form
  • The physical share certificates are converted to dematerialised form, and the physical share certificates are destroyed
  • Finally, the Dematerialized shares are credited to your Demat account, from which you can sell or transfer them to other accounts

Conclusion

Dematerialisation paved the way for the new era of electronic share trading. It has made a significant contribution to the growth and popularity of stock trading among the general public. While Dematerialisation may appear to be a lengthy process, it requires very little user interaction. The entire process of converting physical stock certificates to Dematerialised stock certificates is expected to take 2 to 3 weeks. You must note that only those shares can be Dematerialised which are actively traded on the stock exchange. Once your Demat account has been credited, you can sell or transfer your shares whenever you want.

FAQs:

     1. Can I still convert physical shares into Demat?

Yes, you can convert your physical shares into Demat by opening a Demat account. A Demat account dematerialises your physical shares and converts them into an electronic format. However, make sure that the account is opening in the same name as the owner of the shares. In the case of joint owners, the Demat account must be opened in the name of all owners.  

    2.   Is it compulsory to Demat physical shares?

Yes, it is compulsory to Demat your physical shares. Dematerialisation simplifies investing and trading and removes the scope of fraud and scams. This rule has been set up by the Securities and Exchange Board of India (SEBI). SEBI mandates all investors to only trade and invests in shares in the dematerialised format. For this purpose, you need to open a Demat account.

    3.  What is the physical form shares?

Physical shares are certificates of share that specify your ownership share in a company. Although they are obsolete now, they were used before and issued to investors whenever they purchase shares of a company. Investors had to store these certificates carefully until redemption. However, physical shares have now been replaced by Demat shares that can be stored in a Demat account in a dematerialized or electronic format.

Disclaimer

ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470.  The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  Investments in securities market are subject to market risks, read all the related documents carefully before investing. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents are solely for informational and educational purpose.