​Executive Summary – Are you still holding physical shares of public limited company listed on stock exchange? If yes then you have only 5 months to convert them into demat form because from 5th Dec 2018 onward transfer of physical shares and selling will not be allowed and certificate will become worthless.

Government of India and market regulator SEBI recently issued a notification stating that with effect from 5th Dec 2018 all the physical shares will become worthless. Which means prior to this date all the shareholders of public limited company which is listed in stock market and who holds its equity shares in the form of physical certificate, have to convert them into dematerialised form if they need to transfer or sell them.

The issued notification is a part of amendment done under Listing Obligation and Disclosure Requirements (LODR) Norms and is applicable from the date it was first published on 8th June 2018. This rule is only for Non promoter share holder. SEBI in 2011 has already made it mandatory for promoters of the company to keep shares in demat form.

According to the data available with SEBI, about 2.3% of market capitalisation is still held in the form of physical shares. This includes both retail as well as institutional investors. Institutional investors like mutual funds and others hold physical stock worth Rs. 45,760 crore and retails investors holds physical stocks worth Rs. 1.24 Lakh Crore.  Companies like ITC, Reliance Industries, Sun Pharma, HUL have most investors who have physical stocks.
Please note one can only convert those physical shares into demat which are listed on stock exchange.

There are two main reasons why these amendments have come into force –

1. To stop the fraudulent transfer of the shares – There have been many instances where with the help of details of shareholder, duplicate certificates were issued and were transferred into another name. With the help of dematerialisation transparency will come into picture.
2. Unclaimed dividend and other corporate actions – Sometime due to change in address, physical shareholders lose the track of dividend, bonus, etc. With the help of demat account the dividend and bonus comes into account automatically.

 
What is dematerialisation of Physical Stocks?

Dematerialisation is the process of converting physical stocks into electronic format. Depository is responsible for storing and maintaining stocks in electronic format with the help of depository participant. In India there are two depositories – NSDL and CDSL.  

What is the process of Dematerialisation?

To convert physical shares into demat form, first an investor needs to open a demat account with any of the Depository participant who in addition also provides trading account.  Once DP account is opened, an investor need to fill out Demat Request Form and submit it along with original physical share certificate. It is then cross verified with the help of company registrar and depository. Once it is confirmed and data matches with the record then shares are allocated in the demat account.  

Do you also hold shares in physical format? Do you remember your father or grandfather talking about having physical shares? If yes then this is the right time to get them into demat account. Feel free to contact us if you need any help with regards to this matter.