A shareholder who holds shares and other types of securities of listed companies in physical form after December 5, 2018, will not be able to lodge the shares with company / its Registrar or Transfer Agent (RTA) for further transfer. You will need to convert them to demat form compulsorily if you wish to effect any transfer. With just a few days left before the deadline, DNA Money tells you about key things you must know about converting physical shares into demat form.
Some time back, the markets regulator, Securities Exchange Board of India (Sebi), had amended relevant provisions and disallowed listed companies from accepting a request for transfer of securities/shares held in physical form with effect from December 5, 2018.
Conversion process
For the dematerialisation of physical shares, you will need a demat account to begin. "Client (shareholder) needs to open a demat account with a Depository Participant (DP). Submit the physical share certificates with Demat Request Form (DRF) duly completed in all respect to their DP. The DP will deface and mutilate the physical certificates and then send the certificates to the Issuer/Registrar and transfer Agent (RTA) of respective companies. The Issuer/RTA will verify the genuineness of the certificates and confirm the demat request," said Niraj Sarawgi, CEO - Privilege Client Group, Ashika Group. On receiving a confirmation from the Issuer/RTA, the depository will credit an equivalent number of securities in the demat account of the shareholder maintained with the depository.
Venu Madhav, chief operating officer, Zerodha says that the duly filled and signed copy of DRF should have all details of the ISIN, name of the company, number of shares, etc. The DRF has to be signed by all shareholders. Don't forget to submit self-attested copy of the PAN of all holders and self-attested copy of address proof.
"In case the address proof being provided contains a different address than what is in the company records, then the investor shall provide a copy of such address proof too. In the event that the address proof isn't available, the counter foil of the dividend warrant has to be submitted," Madhav said.
Normally RTA takes 21 days from the date of DRN (Demat Request Number) generated. The entire process could take 25-30 days. The cost varies with respect to the charges from one DP to another. If you do not have a demat account, you can visit any Depository Participant (bank/broker) of your choice and open a demat account. You may also visit https://nsdl.co.in/dpsch.php or https://www.cdslindia.com/dp/dplist.aspx to check for the depository participant service centres in your area.
What if you don't convert
All investors who are holding shares, securities, etc, in physical form, should consider opening a demat account at the earliest and submit request for dematerialisation of their shares in order to protect the liquidity of the shares. But, what if you don't convert? To understand this, shareholders must know why Sebi wants the transfer of shares in physical form to be stopped from December 5, 2018.
"The directive that transfer of shares must be in demat mode is geared towards providing a transparent record of shareholding particularly on account of concerns over beneficial ownership of entities," said Abhimanyu Bhattacharya, Partner, Khaitan & Co.
This amendment by Sebi is being done to help in curbing fraud and manipulation risk in physical transfer of securities by unscrupulous persons. Further, with shares held in demat form, it will improve the ease, convenience, and safety of transactions for investors.
There are plenty of benefits of holding shares in dematerialised form.
First of all, it's a convenient and safer method to hold securities since it eliminates risks of loss, theft, forgery and/or damage of physical certificates.
Two, transactions are much easier to make in demat mode than in physical mode. "Transfers of securities made in physical mode attracts stamp duty, however, there are no such charges on transferring in demat mode. This helps in reducing transaction costs considerably," said Madhav.
Four, corporate action credits (such as dividend, bonus shares, etc) directly take place to the demat account.
Five, there is ease in of availing value-added services like loan against shares, etc, when shares are held in demat mode.
Six, it negates the need to inform each company separately in case there is a change in address/bank of the investor since the change gets recorded by the DP electronically and is communicated to all companies.
Seven, there is ease in the transmission of securities in the event of the death of the primary holder of the shares.
Physical share ownership info
Many shareholders may have forgotten they have physical shares. In case, shares are inherited, this information can be doubly hard to get. But, are ways to find out. One is to check with Ministry of Corporate Affairs website. It allows you to search for investor wise unclaimed and unpaid amounts. This is the link - http://www.iepf.gov.in/IEPFWebProject/SearchInvestorAction.do?method=gotoSearchInvestor
Some apps that can tell you if there are unclaimed dividends. Ashok Rawat, co-founder, Wealthstatus Technologies said: "We have a search option in our app where if someone's dividend is unclaimed, it's most probably because of physical shares of either the investor or their family members."
If physical shares are inherited then is the physical to demat conversion process any different? In case of physical shares being inherited, then the person needs to follow a transmission or transposition process to transfer the shares in a new name or dematerialised, said Ashika Group's Sarawgi.
Thankfully, transmission and transposition of shares held in paper form will continue to be allowed. Transmission happens upon the death of any or all shareholders. Transposition means change in ownership pattern. Once the legal process is over and physical certificates have been issued in the name of the nominee, the same shares can be dematerialised.
Many hold physical shares of companies that are delisted. What happens to them? When a company gets delisted, it simply means that the stock will no longer be listed or be available for trading on the secondary markets. "The holder of such securities continues to retain ownership. The process to dematerialise delisted stocks remains the same as it is for listed stocks," said Zerodha's Madhav.
SAY BYE TO PAPER
- Converting physical shares into demat could take 25-30 days. Cost varies from one DP to another
- Demat shares are easier to hold, safe from theft or being misplaced, can be transferred without stamp duty
- If physical shares are inherited, first do the transmission and transposition
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