How to Convert Physical Shares to Demat?

In today’s digital world, the share market functions entirely through an online dematerialised system. However, many investors still hold old physical share certificates. If you’re one of them, it’s important to convert these paper shares into electronic form.

This article covers the full process of converting physical shares into demat format, the documents required to open a demat account, its benefits, and more.

What is Dematerialisation?

Dematerialisation refers to the process of converting physical share certificates into electronic form. Once dematerialised, shares are stored in a demat account and can be traded using a trading account.

The dematerialisation process in India is managed by depositories.

National Securities Depository Limited (NSDL) Central Depository Services Limited (CDSL)

The depositories work through the network of SEBI-registered depository participants (stock brokers). These participants assist investors in opening a demat account and act as intermediaries between investors and depository institutions. Why is Dematerialisation Required?

Dematerialisation of shares is required because on March 27, 2019, the Securities and Exchange Board of India (SEBI) issued a circular banning the transfer of physical share certificates from April 1, 2019, unless they are dematerialised.

You can still hold shares as physical paper certificates, but to sell or transfer them, you must convert them into digital form.

Why is Dematerialisation Required?

Dematerialisation of shares is required because on March 27, 2019, the Securities and Exchange Board of India (SEBI) issued a circular banning the transfer of physical share certificates from April 1, 2019, unless they are dematerialised.

You can still hold shares as physical paper certificates, but to sell or transfer them, you must convert them into digital form

Documents Required to Convert Physical Shares to Demat

Here are the documents to convert physical shares to demat:

• Original physical share certificates
• Active demat account details
• Dematerialisation Request Form (DRF)
• PAN card and Aadhaar Card
• Bank account details
• Passport-size photograph

Note: The name on the certificates should match the name on your demat account.

How to Convert Physical Share Certificates to Demat?

Here is the step-by-step process to convert physical share certificates to a demat account:

Step 1: Open a Demat Account

Open a demat account with a SEBI-registered broker. This account will hold the converted shares electronically. Without a demat account, you cannot convert the shares.

Step 2: Fill the Dematerialisation Request Form (DRF)

You can ask for the DRF form or download it from your broker's website. Fill in the shareholder's details, mention the certificate numbers, and sign the form exactly as it appears in the records.

Step 3: Submit Physical Share Certificate

Attach the original certificates along with the DRF and submit them to your DP. Before submission, the client has to present the certificates marked with “Surrender for Dematerialisation” to prevent misuse.

Step 4: Verification Process

After submission of the DRF

• The DP verifies the documents and issues an acknowledgement slip to the client.
• The request is sent to the company’s Registrar and Transfer Agent (RTA).
• The signature and ownership details are verified. If everything matches, the company approves the request.

Step 5: Shares Credited to Demat Account

Once the verification is completed, the physical share certificates are cancelled, and the equivalent number of shares are credited to the demat account.

You receive the confirmation via email or SMS. This completes the process of converting physical shares into electronic form in a demat account.

How Long Does Dematerialisation Process Take?

As per the SEBI guidelines, the broker must process the dematerialisation request within seven days of receiving it.

After that, the issuer company, Registrar, or Transfer Agent may take up to 15 days to complete the verification and processing.

Overall, the dematerialisation process takes about 30 working days from the date the request is initiated.

Benefits of Converting Physical Shares into Demat

Converting physical share certificates into demat form has several benefits:

• No Risk of Physical Damage:

Paper certificates may get misplaced, stolen, forged, or destroyed, but shares in a demat account are securely stored in digital form, eliminating the risk of physical damage.

• Easy Buying and Selling:

Buying and selling shares from a demat account is much more secure and can be done entirely online. Investors can check and adjust their portfolios anytime during market hours.

• Centralised Tracking:

Investors can monitor their investment portfolio by logging into their demat account.

• Collateral for Loans:

Dematerialised securities can be easily pledged as collateral to secure loans from financial institutions, subject to the broker’s guidelines.

FAQs

Can physical shares still be sold?

No. As per SEBI regulations, physical shares cannot be transferred or sold. Dematerialisation is mandatory to sell or transfer the shares.

What if the certificate is torn or damaged?

You must first apply to the company for a duplicate share certificate before initiating the Demat process.

How to check if a certificate is valid?

Verify the company’s ISIN, ensure the name matches your PAN/Aadhaar, and confirm that the certificate hasn’t already been dematerialised or transferred.

What if the shareholder has passed away?

The legal heir must complete a transmission request with the following:

• Death certificate
• Succession certificate or legal heir affidavit
• KYC documents of the legal heir

Can mutual funds or bonds also be held in a Demat account?

Yes. You can hold Mutual Funds, Bonds, ETFs, Government Securities, and other securities in your Demat account.