Step By Step Guide To Converting Physical Shares Into A Demat Form

Shares in a physical format held by your grandparents or parents will come to you only when they have been converted into a dematerialised form. According to a circular issued by the market regulator SEBI in April 2019, the request for transfer of shares will not be processed unless they are in dematerialised form. There are only two exceptions to this request, namely, transmission of shares and transposition of securities.

The Indian share market followed an open outcry system for trading, where traders had to be present at the stock exchanges to make trades. Shares were bought and sold using paper share certificates that marked the ownership of the shares. However, with the introduction of online trading, this changed completely. In keeping with these changes, the Indian market regulator, SEBI, prescribed that the trading and investing in shares must now occur only in a dematerialised format. The goal was to boost transparency in the market and simplify the storage and management of securities, reducing instances of fraud and forgery. However, due to this shift, investors with physical share certificates are left wondering how to convert paper shares to demat form. This article offers a comprehensive guide on how to convert paper shares to demat form, covering everything from Demat account opening to the costs involved in such conversions.

Also read: What is Demat account

Transfer of shares refers to the process of transferring the title of a share from one person to another. According to SEBI’s regulation, starting April 2019 onwards, the transfer of shares is permissible only if they are held in a dematerialised format with a depository. In other words, to sell or transfer your shares, they must be held in a Demat account. Transmission of shares due to the death of the shareholder and transposition of shares due to a change in the name order of shareholders are the only exceptions permitted under this regulation.

If you’re wondering how to convert physical shares to demat form, it is important to note that such conversion is allowed only for shares of companies that are active and trading. You can convert physical share certificates if they have a company name and face value.

Also read: What is SEBI

By now, it should be clear that learning how to convert paper shares to Demat requires understanding how to open a Demat account. The first step in opening a Demat account is selecting a DP. A DP or a depository participant, like brokerage firms, banks, and other financial institutions, acts as an intermediary between you and the centralised depository. You can compare service baskets, fees, and reputation to choose the right DP. Most DPs allow investors to open a Demat account online, but you can also visit the DP’s branch office to open a Demat account offline.  Next, fill in the Demat account opening form with relevant details like your name, contact number, email ID, etc. Once that’s done, you have to submit your KYC documents, including your PAN Card and bank account details. The DP will verify the submitted documents and the form to ensure they are authentic and accurate. Post verification, you will be assigned a Demat account number and unique ID required to operate the Demat account.

Understanding how to convert physical shares into Demat form after opening a Demat account is pretty simple. To convert your shares into a dematerialised form, you need to submit a DRF or dematerialisation request form. As per SEBI’s regulations, one DRF can cover up to 4 paper share certificates, provided the shares belong to the same company. If you own share certificates of more than one company, you need to provide separate sets of DRFs for each company. To convert your paper shares to Demat form, you need to submit the original share certificates along with the duly signed DRFs and copies of your PAN Card to the DP. Your DP then sends these documents to the registrar and transfer agent, who will convert these physical shares into a digital format. Upon successful processing, the original certificates are cancelled, and an equivalent number of shares will be credited to your Demat account. You will also receive a notification once the entire process is complete.

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When you are pondering on how to convert paper shares to Demat form, remember that there are certain costs associated with this conversion. Depending on the DP in question, dematerialisation charges for converting your physical share certificates into a Demat format can cost anywhere between Rs. 150 to Rs. 400 per certificate plus 18% GST. Separate courier charges are also applicable if you opt to mail in the certificates. Apart from these costs, you also need to consider the Demat account charges. While most brokerage firms now offer free online Demat account opening services, other charges are still applicable. Demat accounts have an annual maintenance charge or AMC that ranges from Rs. 200 to Rs. 850. AMC can vary depending on the type of broker - full service or discount - you pick. A few brokerage firms offer first-year AMC-free and lifetime AMC-free accounts to help you save on these annual charges. Similarly, transaction charges are also applicable to Demat accounts for the sale and purchase of securities. Depending on the brokerage firm you pick, this may be a flat rate or a certain percentage of the total transaction amount.

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Learning how to convert paper shares into a Demat format is essential for investors who wish to sell or transfer these shares. According to SEBI’s regulations, you can claim ownership of shares held in physical format. Holding shares in demat form reduces the risk of loss and forgery, helping streamline the management and storage of securities. While most investors think converting physical shares into demat form is a long and complicated process, it is actually quite simple. In fact, if all the information and documents are in order, the conversion takes around 21-25 days. Understanding how to convert paper shares into a Demat form is essential to complete this process in a hassle-free manner.