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How to Convert Physical Shares to Demat

How to Convert Physical Shares to Demat

Shares are a significant part of your investments. You can earn a good amount of money by investing in shares. But nowadays, people prefer to invest in shares because it is pretty challenging to go to different share markets to buy and sell the shares and post that keep track of those shares if they gain or lose their value.

On the other hand, Demat accounts provide a platform where you can buy and sell shares instantly just sitting at home. So, if you are also looking forward to investment options and want to know how to convert physical shares into Demat, get your Demat account opened with any stock brokerage company and start investing in your favorite stocks.

What Is a Demat Account?

A dematerialized or Demat account is an electronic record of your holdings with a depository participant (DP). You get a unique member number and password, which you use to access your account online. The DP maintains records of your transactions and will give you periodic statements.

Dematerialization moves shares from physical stock certificates to share accounts in the depository system. You can have your shares dematerialized by your broker. This gives you the benefit of reducing paperwork, eliminating delays in receiving dividend payments, and ensuring that you have easy access to your shares if required.

How Does a Demat Account Work?

A dematerialized account is an electronic record of all transactions relating to securities held by a subscriber with a depository participant (DP). The DP maintains details of all transactions carried out by its clients on their behalf through a SEBI-registered Central Depository System (CDS). Here's how it works:

  • You purchase stocks or mutual funds through the bank's branch or online portal.
  • Your bank will issue an instruction to the CDS, asking it to debit your account and credit an equivalent amount in the respective companies' accounts on its books.
  • You can then sell those securities back to your bank at any time through the CDS platform and get paid in cash or use it as collateral for loans and other financial instruments available from banks and non-banking finance companies (NBFCs).

Why Do You Need a Demat Account?

To avoid the hassle of physically moving shares from one broker to another, all investors who want to buy and sell stocks must open a Demat account with any of the country's four depository participants (DPs). The DPs facilitate physical shares' movement by issuing electronic securities. You can also buy and sell shares through an online trading platform offered by these DPs.

The main benefit of a Demat account is the ease of trading. You can buy and sell shares through this account, even if you don't have physical shares. Depending on your chosen platform, you will have to pay brokerage fees. Hence, knowing how to convert physical shares into Demat is essential.

How Does the Dematerialisation of Shares Help?

Dematerialization is just one aspect of a broader movement toward electronic trading that is transforming capital markets. In dematerialization, physical certificates are replaced with book-entry securities, represented in an account maintained by a broker-dealer or other depository institution. These book-entry securities can be traded electronically and settled through direct deposit to the investor's account.

By virtue of this fact, all the investors should follow a single rule: any equity investment you make must be either in your Demat or your physical account. In other words, don't keep physical shares at home. Convert them to Demat and let the magic happen.

Process for Converting Physical Shares to a Demat Account

You can follow the below process to convert physical shares to Demat shares involves five steps:

  1. Determine whether your broker offers dematerialization services and request this service from them if they do not already provide it (this may require opening a new account).
  2. Once your request has been processed, you will receive a letter from your broker with instructions on how to complete the transition process.
  3. Complete the required forms and mail them back along with any required documentation (such as recent bank statements) to the address specified in your letter from your broker.
  4. Your broker will then convert all holdings in your account over time based on their availability and other factors such as liquidity requirements or market conditions at the time of conversion.
  5. Once this process has been completed, all future transactions will be made electronically instead of through paper certificates.

Benefits of a Demat Account

You should dematerialize your shares and learn how to convert physical shares to Demat to:

  1. Reduce paperwork and delays in receiving dividend payments - You no longer need to worry about filing physical share certificates with your brokerage firm.
  2. Instead, all the details of your holdings are available electronically 24x7x365 through the depository system. This reduces the time taken for account opening, transfer, and sale processes.
  3. It also eliminates the need to wait for physical certificates before getting access to dividends or selling them in an emergency such as fire or theft.
  4. In addition, there is no need to worry about lost or stolen certificates because they are held safely by your broker-dealer on behalf of its clients in its depository account at National Securities Depository Limited (NSDL) or Central Depository Services Limited (CSDL).
  5. The process of converting physical and dematerialized shares is called dematerialization. It has been made possible by technology, which has enabled investors to buy, sell and trade shares online through the internet.
  6. It makes it easier for investors to track their portfolios and keep tabs on their investment performance.
  7. Demat also helps curb frauds involving fake shares or even theft of physical stocks by providing an electronic trail for all transactions that take place through it.
  8. You can also transfer your holdings from one broker to another by instructing them about it via electronic communication, which saves time and effort.

Wrapping Up

Whether you are a busy executive looking to save time, an investor looking to invest in growing companies, or a policymaker looking for avenues of growth, you will undoubtedly benefit from the dematerialization of shares.

It serves a different purpose for different modes of investment and provides its users with an exciting range of features and benefits. Dematerialization certainly gives investors convenience and a safe way to hold their securities.

Frequently Asked Questions (FAQs)

What is the dematerialization of shares?

Dematerialization converts physical shares into electronic units stored in the investor's Demat account. It is a method aimed at enhancing the efficiency of share transactions. Dematerialization helps you manage your share portfolio better and provides several benefits.

What are the benefits of the dematerialization of shares?

Dematerialization is crucial because it will reduce paperwork, save time and money, avoid loss of physical certificates and ensure data safety.

  1. Paperless transactions: The whole process can be automated, and paper-based processes can be eliminated.
  2. Cost savings: By reducing paperwork, costs can be reduced by avoiding printing and shipping costs, etc.
  3. Safety: There will be no risk of losing certificates due to fire or theft. All transactions can be tracked as they are recorded electronically in real-time without any delay in processing.
  4. Transparency: The process can be made transparent by making all records available online so that anyone from anywhere in the world can access them at any time without any hassle or delay in processing them.

How can you convert physical shares to Demat shares?

Online conversion is the easiest way to convert physical shares into Demat form. All you need to do is submit an online application with your broker's website and provide all the necessary details such as bank account details, PAN card number, etc. Here's how:

Step 1: Open an account with any stock broker or fund company supporting dematerialization services.

Step 2: Provide your PAN card details (if required) and submit other documents such as identity proof, address proof, etc., as per the requirements of your chosen broker/MF company.

Step 3: Sign up for your dematerialized account by providing all necessary details such as bank account number (for receiving money) or investment amount (for mutual fund units).

Why is the dematerialization of shares significant?

Dematerialization of shares is a process where the physical share certificates are converted into electronic format. This helps reduce the risk of loss or theft of physical certificates and makes it easier to transfer ownership.

The process of dematerialization reduces the time and effort required for issuing new share certificates. It also reduces the cost involved in managing shareholders' records since they are maintained electronically instead of physically.

Dematerialization is essential because it helps reduce paperwork and makes it easier for investors to buy and sell shares. It also reduces the scope for fraud involving fake share certificates.