How to Convert Physical Shares into Demat?

The full form of a demat account is dematerialised account. It is a digital account that holds shares virtually without physical certificates. 

Developing technology and investor demand have changed the investing process and showcased ownership over shares. Previously, the Indian equity market followed an open outcry system where companies printed physical share certificates to investors. 

However, in 1999, the Securities and Exchange Board of India (SEBI) introduced demat accounts and shifted the ownership of shares from physical certificates to digital. 

With the introduction of demat accounts, SEBI guidelines required all investors to convert physical shares to demat. Here’s how to convert physical shares into demat if you have physical share certificates. 
 

What is a Demat Account?

Before we jump into how to dematerialise physical shares, let’s quickly revise what a Demat account is.

A Demat account allows investors to hold their securities in electronic format. You can invest in securities such as shares, bonds, mutual funds and other financial assets through this account. Additionally, it is easy to track, trade, and transfer securities without physical delivery or storage. 

Depository participants manage demat accounts, which act as intermediaries between investors and the depository. In India, the two depositories are the National Securities Depository Limited (NSDL) and the Central Depository Services Limited (CDSL).

One of the main features of a demat account is the conversion of physical shares to demat. Investors with physical share certificates can open a demat account to own the shares digitally, as SEBI has disqualified the former as an ownership document. 
 

What is the Dematerialisation Process?

When SEBI introduced the demat accounts in 1999, it was mandatory to convert physical shares to demat. The dematerialisation process in India is this conversion into electronic or digital form. 

Investors can convert their securities, such as shares, debentures, bonds, and mutual fund units into electronic format. The process includes four parties: depositories, issuers, beneficial owners and depository participants. 

●    Depositories: These entities (NSDL and CDSL in India) hold diverse securities purchased by investors in electronic forms. 

●    Issuers: These companies or departments issue securities to investors against their invested amount. 

●    Beneficial Owners: These entities are investors whose securities are held in a demat account opened by a depository. 

●    Depository Participants: Depository participants (DPs) are intermediaries between investors and depositories in the Indian securities market. DPs can be banks, financial institutions, brokerage firms, or any other entity registered with the depository.

Why Dematerialisation? Advantages of Dematerialised Shares

The motive behind the dematerialisation process is to know how to convert physical shares to demat, as SEBI has made it mandatory to convert physical shares to demat. As per SEBI, investors who still hold shares in the physical format cannot claim ownership once they have converted their physical shares to demat by opening a demat account and following the dematerialisation process. 

This process provides the following benefits once investors know how to convert physical shares into demat.

●    Convenience: Investors can trade and transfer dematerialised shares conveniently, without physical delivery or paperwork, making buying and selling shares more efficient with utmost transparency. 

●    Security: Dematerialised shares eliminate the risk of theft or damage associated with physical certificates. 

●    Cost-effective: Dematerialisation has reduced the cost of transactions by eliminating the need for printing and dispatching physical certificates. It has also reduced the time taken for settlement of transactions.

●    Flexibility: The conversion of physical shares to demat provides investors with high trading and investing flexibility. Now, they can buy and sell single shares instantly within seconds. 
 

Difference Between Dematerialisation and Re-materialisation

Dematerialisation allows investors to convert physical shares to demat. However, the reverse process of Re-materialisation converts electronic or digital securities back into physical certificates. 

Here are some of the most common differences between Dematerialisation and Re-materialisation.

●    Purpose: Dematerialisation converts physical shares to demat and provides a secure and efficient way to hold and trade securities. Re-materialisation allows investors to obtain physical share certificates for their digital securities. 

●    Process: The dematerialisation process involves opening a demat account, submitting physical share certificates to the depository participant (DP), and receiving electronic securities in the demat account. 

Re-materialisation involves submitting a request form to the DP, receiving physical share certificates, and cancelling the electronic securities in the demat account.

●    Timeframe: Dematerialisation is a one-time process to convert physical shares to demat. On the other hand, investors can re-materialise their securities anytime after dematerialisation, which can be reversed multiple times.

●    Management: Depositories such as NSDL and CDSL manage and maintain the dematerialised shares. However, issuers of physical share certificates are responsible for maintaining re-materialised securities. 

How to Dematerialise Your Physical Share Certificates?

The dematerialisation process in India has eliminated the need for physical share certificates and reduced the risk of loss, theft, or damage. It has also made buying and selling securities faster and more efficient. However, the process of dematerialisation requires the investors to know all the factors included in converting physical shares to demat and opening a demat account with a registered stock broker. 

Once you have opened a demat account, you must submit a request for converting physical shares into demat. 

However, before opening a demat account, choose a depository participant (DP) or an experienced stock broker offering numerous unique features. Some features include a paperless dematerialisation process, a user-friendly interface, a cost-effective demat account fee structure, and a unique trading platform. 

Once you have opened the demat account, you can follow the next steps in converting physical shares to demat. 

The Process to Convert Your Physical Shares into Demat Form

You can not claim ownership of the shares if you hold physical share certificates, as SEBI has made it compulsory to convert physical shares to demat. To convert physical shares to demat, you can follow the steps of how to convert physical shares into demat. The dematerialisation process includes the following steps.

●    Opening a Demat Account: An investor must open a demat account with a depository participant (DP) registered with either the National Securities Depository Limited (NSDL) or the Central Depository Services Limited (CDSL). 

●    Submitting Physical Certificates: The next step is to present the physical share certificates to the DP and obtain a Demat Request Form (DRF). The DRF contains details of the investor's demat account, the securities to be dematerialised, and other necessary information. 

●    Verification: Once the depository participant receives the filled dematerialisation request form from the investors, the verification process begins. The DP verifies the physical certificates and forwards them to the company's registrar for further verification.

●    Cancellation: The registrar verifies and then cancels the physical certificates. The investors can no longer use them to claim ownership. 

●    Credit: Once the registrar cancels the physical share certificates, the company credits the investor’s demat account with the electronic shares. 

Documents Required to Convert Physical Share Certificate to Demat

SEBI has made it mandatory to provide some documents to convert physical shares to demat successfully. Here are the documents required to convert physical shares to demat in India.

●    Proof of identity by submitting photo identity cards such as driving licence, voter ID card, PAN card or Aadhar card. 

●    Proof of residence by submitting documents such as driver's licence, passports, electricity bills, gas bills, telephone bills, copy insurance, lease agreements, etc. 

●    Proof of financial statements by submitting the bank’s passbook or account statement for the last three months. 

●    The original copies of all the physical share certificates should be in good condition with clearly visible information. 

●    Duly filled dematerialisation request form. If you want to convert physical shares to demat of more than one company, you must submit different forms for different companies. 

●    Ensure you deface all the physical share certificates before submitting them to the DP. Defacing the physical share certificates requires writing ‘Surrendered for Dematerialisation’ on each. 

●    Once you surrender the physical share certificates, the DP will provide an acknowledgement slip for the renounced shares. 

How to open a Demat account with 5paisa

5paisa is one of the biggest stockbrokers in India, registered with CDSL as a DP to provide investment services to customers. With over 33 lakh customers, it provides investment services in numerous asset classes such as stocks, mutual funds, currencies, derivatives, commodities, foreign stocks, etc. 

The trading platform comes with unique investment features allowing investors to invest in real-time and efficiently. To start your investment journey or to convert physical shares to demat, you must open a demat account with 5paisa.

Here are the steps involved in opening a demat account with 5paisa.

●    Step 1: Visit 5paisa's website or download the 5paisa app and navigate to the demat account section.

●    Step 2: Enter your phone number and click “Open account Now.”

●    Step 3: You will receive a verification code on the same phone number. Insert the code and click on the “Apply Now” button.

●    Step 4: Enter your email address and the verification code sent to your inbox.

●    Step 5: Enter your PAN number and date of birth, and click “Proceed.”

●    Step 6: Complete the E-KYC (Know Your Customer) process. 

●    Step 7: Complete the Verification Procedure. This will require you to upload a selfie in real time.

●    Step 8: E-sign the form to complete your account opening procedure.
 

Disadvantages of Using Physical Share Certificates for Trading of Shares

Trading shares through physical share certificates have several disadvantages compared to the securities held in a demat account. 

●    Time-Consuming: Trading or investing through physical share certificates can be inconvenient and time-consuming. It involves the physical delivery of share certificates, which can be slow and costly, particularly for investors who live in remote areas.

●    Lower Security: Physical share certificates can be lost or stolen, resulting in significant financial losses for investors. It also poses a security risk as unauthorised persons can misuse the certificates.

●    High Transaction Cost: Trading or investing through physical certificates can be expensive due to the high transaction cost involved in printing, transporting, and verifying them.

●    Delayed Settlement: The settlement of transactions involving physical share certificates can be delayed due to the time required for the physical delivery and verification of the certificates. This can result in missed trading opportunities and financial losses.

●    Lack of Flexibility: Holding physical share certificates can limit investors' flexibility in trading shares. It can be difficult to sell or buy shares quickly or in small quantities, which can be a disadvantage in a fast-moving market.
 

Conclusion

Multiple DPs, such as 5paisa, provide the opening of free demat accounts and allow investors to invest effectively by utilising their unique trading platforms. Since the Indian stock market has shifted towards a digital process, it is better to convert physical shares to demat to avoid losing share ownership. 

You can use the dematerialisation process after opening a demat account to convert your physical shares to demat and start trading and investing in real time. Now that you know how to convert physical shares into demat, convert your physical shares into demat and start trading with 5paisa.