What are physical shares and how do you get them dematerialised?
Today, when you buy or sell shares, brokers insist on dealing only in dematerialised shares. To get your shares dematerialised you have to open a demat account and get into an agreement with a depository participant. You need to surrender your physical share certificates to the company which issued them, informing them and giving details of your agreement with your depository participant.
On the basis of this, the company would cancel your certificates and register your shareholdings in the name of your depository participant, as the registered owner of those shares and intimate this registration through a notice to your depository participant.
On receipt of the aforesaid notice from the company, the depository participant would register you as the beneficial owner of those shares. Remember, as a registered owner your depository participant has no rights of benefits from those shares. All rights would lie with you as the beneficial owner.
How do I demat my shares?
To start with, you will have to open an account with a depository participant (DP) and get a unique client ID number. Various banks and brokers are DPs. You could choose one based on your comfort level. Once the account is open, you will have to fill up a Dematerialisation Request Form (DRF) provided by the DP and surrender the physical shares, which you want to be dematted to the DP.
The DP upon receipt of the shares and the DRF, will send an electronic request to the company’s registrar and share-transfer agent through the depository for confirmation of demat. Each such request will bear a unique transaction number. Simultaneously, the DP will give the DRF and the shares to the company’s registrar and share-transfer agent with a covering letter requesting the registrar and the agent of the company to confirm demat.
The company’s registrar and share transfer agent will verify the documents so received and after necessary verification will confirm demat to the depository. This confirmation will be passed on from the depository to the DP, which holds your account. After receiving this confirmation, the DP will credit the account with the shares so dematerialised. The DP will hold the shares in the dematerialised form thereafter on your behalf. And you will become beneficial owner of these dematerialised shares.
Why is demat essential today? What are its benefits?
Today, most brokers deal only in dematerialised shares. Dealing in physical shares is a very cumbersome process. It involves problems of bad deliveries, delay in processing, fraud in transit and so on. Demat attempts to avoid these problems and the time-consuming and complex process of getting shares transferred in the name of buyer.
It is a conversion of a share certificate from its present physical form to electronic form for the same number of holding and it offers scope for paperless trading whereby share transactions and transfers are processed electronically, without involving any share certificate or transfer deed after the share certificates have been converted from physical form to electronic form.
Is demat compulsory? If I hold physical shares do I have to necessarily get it dematerialised?
Dematerialisation of shares is optional and an investor can still hold shares in the physical form. However, if they wish to sell it on the stock exchange, most brokers would not accept it, and hence, investors have to get it dematerialised. Similarly, if an investor purchases shares, he/she will get delivery of the shares in demat form only.
The Depositories Act, 1996, has been enacted to regulate the matters related and incidental to the operation of depositories and demat operations. Two depositories are in operation - National Securities Depository (NSDL) and Central Depository Services (CDSL).
Physical Shares and have to get into Demat
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