The financial world is constantly growing and evolving. So, if you are a trader or investor, this growth will also constantly change the way you manage investments. This is why SEBI, or the Securities and Exchange Board of India, has asked traders to convert their physical shares into digital format.
Traders will thus have to open a demat account to hold their shares in digital format and keep track of them. SEBI has insisted that this step needs to be taken urgently.
In this blog, we will look at why there is such an insistence to convert physical shares into demat in 2024, and we will also read about how this conversion can happen.
Why the Conversion is Mandatory
Since traders and investors have started to embrace the new demat account opening process, trading in the stock market has become easier.
As a result, the use of physical share certificates has dropped rapidly. SEBI has now also insisted that corporations only issue shares in the dematerialized form and not as physical certificates.
When traders open a demat account, they do not have to worry about keeping the securities or shares in physical form. The convenience and security that Demat offers in trading are among the main reasons that SEBI has been insistent about conversion.
Why the Urgency to Convert
One of the main reasons why SEBI has been so insistent about the conversion process is because having shares in digital form simplifies the settlement process and makes it more efficient.
Since the Demat account can be considered an electronic bookkeeping method, the conversion process also brings transparency into the share market. This helps tax authorities keep track of all the shareholders of a corporation.
With the insistence to open a demat account SEBI also hopes to eliminate fraudulent behaviours that share transfer agents might try to indulge in, thus making it difficult for shell companies to operate out of the market.
Advantages of Converting Physical Shares to Demat
There are two main benefits of converting physical shares to demat form:
- Accessibility:
Since all the information about the shares owned by a trader is shared in an online form, it can be monitored and accessed by the trader from anywhere and at any time.
- Security:
The dematerialization process of physical shares helps them steer clear of any unauthorized access or possible theft, which is possible with physical certificates. A new demat account opening process requires that traders use a demat number that only they will be aware of. This increases the security aspect of the shareholding process in digital form.
Steps to Open a Demat Account
The steps on how to open a demat account are listed below:
- Choose your DP, as they act as a middleman between the trader/investor and the depository body or demat account. A DP can be a bank or financial institutions
- Fill out the demat application form present on the DP’s website
- Submit your KYC documents with the demat application form
- Sign the agreement offered by the DP after reading it carefully and discussing the charge schedule with them.
- After all the discussions, the DP will provide the trader with a unique ID and password with which they can log in to their demat account.
Steps to Convert Physical Shares to Demat
Below are the steps that will help investors or traders convert their physical shares to demat form.
- Obtain a DRF or Dematerialisation Request Form from your DP, fill up all the details and submit it with the DP along with all your physical share certificates.
- After receiving your DRF form, the DP will start processing your request
- The DP will then transfer the trader’s request to an appointed registrar and a share transfer agent
- The DRF form is then approved by the registrar post, and your DP will transfer the electronic version of your shares to your demat account.
Conclusions:
Since everything has turned to the digital mode, SEBI’s insistence for traders to open a demat account and convert their physical shares to digital ones makes sense. But this process doesn’t just offer convenience, it offers security and transparency to the traders. So the next time traders come across their physical share certificates, they’d know what to do with them.
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Alex Hoxdson