By dematerialising your shares, you can avoid the risk of someone forging a transfer, faking your certificate or losing it.

Did you chance upon a stack of yellowed sheets in your cupboard when you did your spring cleaning recently? Yes, those share certificates, perhaps bought in the IPO-crazy 90s market or even earlier. Your share certificates are a classic case of profits only on paper.
Besides difficulty in selling or transferring these shares, you run the risk of someone forging a transfer, faking your certificate or maybe simply losing your certificate. To avoid these pitfalls, you can dematerialise (demat) your shares.

Benefits

Dematerialisation or demat is the process of destroying the physical form of shares or certificates and retaining ownership of those shares in electronic mode – in a depository (NSDL and CDSL).
It is not mandatory for you to hold shares in demat form. But a good number of shares traded in the bourses require compulsory demat for transfer and delivery. This is the case with trades under Group A and B shares in BSE.
Even if you do manage to sell your physical shares through the off-market route, you need to pay stamp duty on the same. What’s worse, there are not too many transfer agents to do this job for you. Shares in demat form can be easily sold through your broker – either offline or online.
The physical share market may also not fetch a good price. And above all, since you do not pay securities transaction tax (which you do when you sell shares in the stock exchanges), you will suffer capital gains tax when you sell physical shares.
There are other advantages to demat such as faster settlement of your trades, easy monitoring of your portfolio and lesser scope for forged transactions. If you hold shares in demat form, any change in address or bank account can be simply intimated to the DP instead of writing to every company in which you hold shares.

Opening an account

If you do not already have a demat account, the first step is to open a beneficiary account with a depository participant (DP). A DP is typically an agent/broker who interfaces with the depository (NSDL and CDSL). Many banks and stock brokerages offer this facility for a nominal rent. You will be required to fill an account opening form and sign an agreement with the DP along with proof of identity and address, PAN card and photograph.
But here’s a note of caution: your demat account should be in the same name as the ownership in physical form. In other words, if you hold one company’s share certificate in your individual name and the other share jointly with your spouse, you cannot hold the two in the same demat account.
To overcome this, you will have to own two demat accounts: one in your individual name and the other in joint names. You can add or delete a joint name in certain shares to reduce the number of demat accounts you hold. However, you cannot do this at the time of applying for a demat account. For the purpose, you will have to contact the individual companies’ investor department.
Since this process can be cumbersome, if you own shares jointly with just one other holder, then it is easier to open separate individual and joint accounts. If you hold various shares jointly with a good many others, then it’s advisable to first consolidate holding and then open a demat account.
Further, you may have shares in different orders of joint holding. For instance, you may be the first holder in some and second holder in others. Here, you can still hold them in a single joint demat account but ask for the transposition cum demat form and fill it up to ensure such joint holding.
You can demat only those shares that are registered in your name. If some physical shares devolved from an ancestor, you should have done the registration in your name first, before attempting to demat it.
Once your demat account is opened, you can demat your shares by filling a demat request form in triplicate along with the required details. Submit this form to your DP with the certificates to be dematerialised.
Ensure that you get an acknowledgement and the physical share certificates are defaced by marking ‘surrendered for dematerialisation’. Do ensure that the combination of the names in the shares matches with the demat account names.
You should get your shares in your demat account within a maximum of 30 days. If you have not got them and your DP is unable to help you, you can contact the grievance cell of NSDL or CDSL. Sometimes, your demat request may be rejected because the certificate was fake, or there is a signature difference, or there is court case.
Once your shares are in demat form, they will not carry certificate numbers, so don’t try to search for them. Your shares can be easily sold!
vidya@thehindu.co.in