If you're still holding your shares in physical form, you must act fast to get them digitalised. That is because Sebi issued a notification on June 8, barring the transfer of securities that have not been de-materialised. Anything that remains on paper cannot be transferred after December 5. The only exception to this rule is the transfer of physical shares under a will in the case of the shareholder's death.
Brokers say several clients, especially senior citizens, still hold their shares in physical form because their key aim is to reap the dividends. They aren't interested in trading and only want to pass on the shares to the next generation.
However, keeping shares in physical form is quite risky and may give rise to a lot of frauds. Sebi’s move will help put an end to frauds committed by share transfer agents and would improve transparency in the dealing of securities.
G Chokkalingam, MD, Equinomics Research, says it’s a good initiative, as government will now be able to monitor several such shares that have so far been stashed away in lockers, thereby making the process of tracking unaccounted money invested in them easier.
“There are several instances when agents take advantage of the unaccounted physical shares of their client, especially in cases where dividends have been unclaimed for several years. If one dies, or changes one's address, he or she stops receiving any kind of communication from the company. But the agents are aware of all the details and they tend to transfer it to other clients. And henceforth, these new clients start receiving dividends and in a way become shareholders,” says Chokkalingam.
With everything coming into demat form, such frauds can be eliminated and there will be smooth inflow of dividend or communication from the issuing company. This will also help in reducing the compliance burden on the companies.
How to de-materialise
If you had bought physical shares with transfer deeds but have still not transferred them to your name, you will have to first get shares transferred to your name and then convert them to demat.
In order to convert your physical shares, you first need to open a demat account with the depository participant (DP), who acts like a share broker. Get hold of the account opening form and see that it is duly filled. You will also need to fill in your bank account details with which you want to link your demat account. The entire process takes a week’s time.
Once the account is opened, the next step would be converting the physical shares into electronic format. How do you do that? A Dematerialization Requisition Form (DRF) needs to be filled. Your name in the demat account should be identical to the one in the physical shares.
Once you submit the DRF form, your share certificates will physically be verified by the issuing company or its Registrar and Transfer agents. Your signature in the account should tally with the one in the physical shares. Once the documents are verified, your physical share certificates will be converted into demat within two to three weeks.
And once the shares enter your demat account, the depository Participant will provide you a statement of your holdings. You can then sell or transfer those shares during market hours.
Lost your share certificate?
In case you have lost the physical share certificates, a police complaint needs to be filed and the issuing company needs to be notified. You will then have to fill up some forms, after which the issuer will advertise the loss in two prominent newspapers, giving time to anyone else to stake a claim. If no such claim is forthcoming, then once again the process of verification described in the previous section will kick in. Once the issuer is satisfied that everything is in order, the shares will be transferred to your demat account.
Holding physical shares of delisted companies?
The only roadblock you will encounter is defunct or dormant companies whose shares are no longer traded. Umesh Mehta, head of research of Samco Securities says in such cases physical shares remain physical only. Even if you demat them, it will be an exercise in futility as you can't sell them anyway. If the de-listed company is working and has a Registrar and Transfer agent, then you can convert the shares into demat. But if the company is bankrupt or struck off, you can't even demat the shares. You need to wait for the company to list back, if at all. Once it gets listed back, you can sell or transfer its shares.
If you are holding shares that are listed, but whose trading has been suspended for several years, then again you can't do anything but wait till Sebi withdraws the suspension and the company re-lists on the stock exchange.