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In 2018, SEBI, the regulatory body for securities and commodity markets, directed traders to opt for digitisation or ‘Dematerialisation’ of shares. The latest SEBI notification makes it mandatory for all shareholders to convert physical shares to Demat. 

 

If you fail to comply with this order, your physical share certificates will be frozen w.e.f. April 1, 2023. These shares will hold zero value, and you will not be able to encash them unless you convert them into electronic form. 

Steps to Convert Physical Shares to Demat Online

If you are yet to convert physical shares to demat, you need to do it as soon as possible. As mentioned, if you fail to do so, your physical share certificates will be frozen from April 1, 2023. 

 

Follow these steps to complete the process of converting physical shares into demat.

  • Step 1: Opening a Demat Account

The very first step for converting physical shares into Demat is opening a Demat account for yourself. To get your demat account opened, contact a SEBI-registered Depository Participant (DP), i.e., an intermediary between investor and depositor.

 

You can also open your account with your bank, as most banks also function as DP. Fill out the account opening form and submit the required documents. 

 

Finally, sign the agreement with your DP that states the rights and responsibilities of the account holder and the depositor. After completion of your application, you will be provided with a Demat account number, with which you can start training in stocks and securities. 

 

When opening a demat account, ensure that the account holder’s name matches with that mentioned on the physical share certificates.  

  • Step 2: Submitting a Dematerialisation Request Form (DRF)

After you have opened a Demat account, you need to raise a request for the transfer of shares in the Demat form. For this, you will need to fill out a Dematerialisation Request Form
 

However, if you have more than one physical share certificate, you will need to fill out different sets of DRFs for each of them. Make sure that the details you provide in these forms are correct before submitting them with your DP. 

  • Step 3: Surrendering Your Physical Shares

Along with the DRF, you also need to surrender your physical share certificate with the DRF. When you do that, scribble on every share certificate: ‘Surrendered for dematerialisation’. For surrendering your certificate, the DP will provide you with an acknowledgement slip.

 

After receiving your request, the DP will send these details to the Registrar and Transfer (R&T) agent. Registrar and Transfer (R&T) agents are private firms that are registered with SEBI that assist DPs and fund companies in maintaining the records. 

  • Step 4: Conversion of Paper Shares into Digital Form

When your request for physical to demat conversion of your shares is approved and processed, your holdings will be transferred to your demat account. In addition, the physical share certificates will be destroyed.  

Benefits of Transferring Physical Shares into Demat Account

With the completion of your physical share transfer to the demat account, you will get to enjoy the following benefits:

 

  • Increases Security: When you convert paper shares to demat form, you do not have to worry about your shares getting lost, stolen, or damaged. This is the biggest worry in the case of physical holdings.

  • Eliminates Threat of Forgery: Since dematerialised shares exist in electronic form, there is no threat of fraud and forgery.

  • Enables Quicker Transaction: The electronic shares facilitate easy, quicker, and seamless transfer and transaction of shares. Accordingly, it lowers the processing time when transacting in stocks and securities.

  • Lowers the Cost: As physical holdings also attract paperwork and stamp duty charges, possession of shares in digital form is much cheaper. When you trade through a Demat account, these costs are eliminated. 

  • Allows Access from Multiple Points: As you possess these shares in digital form, you can access dematerialised shares from different channels, like mobile, laptop, etc.

Conclusion

Converting physical shares into demat form is necessary because of the SEBI mandate. With the transfer of your physical share to a demat account, you enjoy various benefits, like lower costs, seamless transactions, enhanced security, etc.

 

Hence, it makes perfect sense to open your demat account and raise a dematerialisation request if you have not done it yet.

FAQs on Steps to Transfer Physical Shares into Demat Account

How long will it take for the process of converting physical shares into Demat?

The entire process, from opening a demat account to transfer of paper share to a Demat account in electronic form, may take 15-30 days. You can also check the status of dematerialisation with your DP.

What will happen if I do not convert physical shares to Demat?

If you fail to comply with the SEBI’s notification to convert physical shares to demat, your holdings will be frozen. It means that their value will be zero, and you will not be able to transfer, sell, or encash them unless you complete the dematerialisation process.

Can the dematerialisation process be carried out in case of the demise of the shareholder of physical share certificates?

Yes, the SEBI has allowed for the continuation of transmission of paper shares, i.e., a change in ownership after the demise of the shareholder. Dematerialisation of these shares can be carried out after the transmission process is completed.

Can I convert paper shares to Demat if I miss the deadline of April 1, 2023?

Yes, you will continue to hold the paper shares even after the deadline of April 1, 2023. However, to transfer, sell, or encash them, you will need to convert physical shares to Demat.

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