Over a period of years, there have been a number of awareness campaigns across various platforms about what is demat account and what is dematerialisation. The Securities and Exchange Board of India (SEBI) has issued new set of rules and amendments under the SEBI regulations 2018. As per the new amendment, the investors who have shares of the listed company in physical form after 1st April 2019 will not be able to transfer them until they convert them into dematerialised form. To put it another way, starting 1st April 2019, the investors will be allowed to sell or transfer their shares held in physical form only if they have been converted to dematerialised or demat form.
The new amendment has been brought by SEBI to overcome the number of frauds in relation to the physical form of shares. The process of transfer of shares held in physical form is cumbersome. Moreover, the accrual of unclaimed dividend on the shares held in physical form is very high. Therefore, by converting physical shares into dematerialised form will eliminate most of the related problems because there would be a link between the demat account and bank account of the investor.
Does Physical Form of Shares Become Invalid Post 1st April 2019?
The shares held in physical form after 1st April 2019 would still be valid. After the amendment, the only restriction is on the transfer or selling of shares held in the physical form. Therefore, to realise the value of shares in physical form it is important for the investor to first convert them into demat form. Only then the investor would be able to transfer or sell the shares in the market and receive money in the bank account.
Procedure for Converting Physical Shares into Demat Form
Demat account opening is the primary requirement to convert physical shares into dematerialised form. For demat account opening the investor holding the shares in physical form must contact the broker and submit the necessary documents required for opening the account. For more details on demat account opening procedure, also read – what is the procedure to open demat account and things to know before opening a demat account.
Restrictions and Procedure
When the physical shares are in the name of a deceased person, there is a certain procedure that needs to be followed by the legal hires of the deceased person. If the current valuation of the shares does not exceed Rs. 2 lakhs, in such a case, the legal hires can directly approach the company whose shares need to be dematerialised along with the proof of death certificate of the deceased person. On the other hand, if the current valuation of the shares exceeds Rs. 2 lakhs then the legal heir of the deceased person needs to appoint a lawyer and get probate from the court for establishing the legal ownership on the shares.
Conversion of physical shares into demat account is a good move in the long run. It will ease out many processes and bring more transparency to the system. Moreover, the procedure to convert is easy and the investor just needs to open a demat account for dematerialising shares. Therefore, every investor holding shares in physical form must convert them into demat form before 1st April 2019 to avoid any problems in the future.