Mar 21, 2024 Value Broking 7 Mins 1.4K

The Securities and Exchange Board of India (SEBI) has made it mandatory to trade and invest in shares in their dematerialized form. It came into existence to provide a safe and hassle-free trading experience. Traders no longer need to carry physical certificates to trade stocks like in the past. If you have your shares in physical form, convert them into dematerialized form. 

Convert Physical Shares to Demat

You may be thinking now, how to convert physical shares to Demat? Is it possible, and if, yes, how can I convert physical shares to Demat form? Dematerialization of shares is the conversion of physical shares into digital format. Such shares get reserved in an investor’s depository account that investors open with a stockbroker

So, first, one must open a Demat account with a depository participant before requesting to convert their physical shares. A depository participant is a huge part of the Indian stock market. Many brokers also offer free account opening services with no annual maintenance charge for the first month. 

There are many advantages to the dematerialization of documents, and you will find a further explanation in the following words:

What is Demat Account?

A demat account specifically designed for keeping and managing different financial instruments in a digital format is called a “Demat Account,” which stands for “Dematerialized Account.” In place of conventional physical share certificates, it enables investors to own and trade financial assets, including stocks, bonds, mutual funds, exchange-traded funds (ETFs), government securities, and other securities without using paper. The Demat Account offers investors a safe and practical way to manage and transact their assets by removing the danger of theft, destruction, or loss of physical certificates. It has evolved into a crucial element of contemporary investment, simplifying the electronic exchange of assets for purchases, sales, and transfers.

What is the Dematerialization Process?

The dematerialization process is the transition from physical, tangible forms to digital or virtual representations. It entails converting tangible items, papers, or transactions into digital or computer-readable representations. Technological developments, notably in information technology and the internet, have aided this shift. Dematerialization has several advantages, including less adverse effects on the environment, cost savings, higher productivity, and accessibility. Examples of this phenomenon include the shift from paper documents to digital files, the substitution of digital payment methods for real money, and the emergence of virtual products and services in the digital economy. Dematerialization has, in general, greatly influenced the contemporary world and continues to impact many facets of our everyday life.

Advantages of Dematerialization

Dematerialization of shares offers many benefits to its users. A few of them are:

Safety

In the past, trading was through holding shares in physical certificates. This method was inefficient and had issues with the authenticity and security of share certificates, as they could get stolen or misplaced, which always caused stress in the investors’ minds. With the dematerialization of shares, traders no longer have to worry about these issues. 

Convenience

The stock market has become more affordable and convenient. A beginner can invest efficiently without any difficulties. The credit goes to the digitalization of trading. The problems associated with storage and maintenance in traditional trading got eliminated.

Instant Access

Investors can now access their Demat account online and conduct trade anytime. 

You know the basics of dematerialization and the advantage of converting physical shares into Demat form.

The Procedure of Conversion of Physical Shares to Demat Form

Step 1: Open a Demat Account 
Start the process by opening a Demat account with a depository participant (DP) associated with either NSDL or CDSL, the two depositories in India. Compare the facilities of various DPs before making a choice.

Step 2: Choose DP and Apply Online 
Visit the website or app of your chosen DP and click on the “open a Demat and trading account” option. Provide all the necessary details and complete the KYC process by submitting required documents.

Step 3: DP Processing and Verification 
The DP will process your account opening request and conduct the necessary verification. Once verified, you will receive a unique user ID and password to access your Demat account.

Step 4: Transfer Physical Share Certificates 
Now, you need to fill out the Dematerialization Request Form (DRF) provided by your DP. Mention “Surrendered for Dematerialization” on each physical share certificate you wish to convert.

Step 5: Submit DRF and Physical Share Certificates 
Submit the filled DRF along with the physical share certificates to your DP. The DP will acknowledge your request with a Dematerialization Request Number (DRN).

Step 6: DP Sends Request to RTA 
Your DP will forward the dematerialization request, along with the DRN, to the company’s Registrar and Share Transfer Agent (RTA) for approval.

Step 7: Approval and Conversion
Upon RTA approval, the physical share certificates are destroyed, and the equivalent dematerialized shares are credited to your Demat account.

Step 8: Verify Demat Account Ensure that the correct number of dematerialized shares is credited to your Demat account. 

You can now manage and trade your shares electronically through your Demat account.
Congratulations! Your physical shares are now successfully converted to Demat form, providing you with convenience and ease in managing your investments.

Now you have successfully opened your Demat account. 

Steps for Conversion of Physical Shares to Demat form

Step 1: Request for Dematerialization Form (DRF) 

Contact your depository participant (DP) to obtain the Dematerialization Request Form (DRF). This form is essential for converting your physical share certificates into dematerialized form.

Step 2: Fill out the DRF and Mention ‘Surrendered for Dematerialization’ 

Complete the DRF with all the required data, providing accurate details about your shares and personal information. Also, mention ‘Surrendered for Dematerialization’ on each physical share certificate you wish to convert.

Step 3: Sign the DRF 

Ensure you sign the DRF wherever required as a confirmation of your request for dematerialization.

Step 4: Submit DRF and Physical Share Certificates to DP 

Send the duly filled and signed DRF along with the physical share certificates to your DP. Make sure to keep a copy of the submitted documents for your records.

Step 5: DP Processing and DRN Acknowledgement 

After receiving your DRF and physical share certificates, your DP will process your dematerialization request. During the processing time, your DP will provide you with a Dematerialization Request Number (DRN) as an acknowledgment of your request.

Step 6: DP Sends Request to RTA 

The DP will forward your dematerialization request, along with the DRN, to the company’s appointed Registrar and Share Transfer Agent (RTA) for approval.

Step 7: Approval and Conversion 

Once the RTA approves the dematerialization request, the physical share certificates are destroyed, and the corresponding dematerialized shares are credited to your Demat account.

Step 8: Dematerialization Completed Congratulations! 

Your physical share certificates have been successfully converted to dematerialized form, and the relevant number of dematerialized shares is now reflected in your Demat account. You can conveniently manage and trade these shares electronically through your Demat account.

Conclusion

The dematerialization of shares has significantly impacted the Stock Market world. trading is now more straightforward to carry out. The main reason more people seem to be interested in trading and investing in shares and mutual funds is the comfort of digital platforms. The procedure for the conversion of physical shares to demat form, explained in this article, is simple, and you can carry it out at any time.

Today, we notice a considerable increase in the number of investors because opening a Demat account has become easy. Anyone with the mandatory documents can open a Demat account and trade in the Indian stock market. Many brokers understand the demand for a Demat account for investment in the minds of this generation; hence they also hand out the opportunity to open a free Demat account to their investors.

Frequently Asked Questions (FAQs)

The number of documents can differ from one DP to another, but some essential documents are always required. For example, you need to submit your PAN card, Aadhaar card, income proof, bank account details, etc., like your address proof and identity proof details.

Yes, you can link your bank account with your Demat account. And you can also connect your trading account to your Demat account, as all these three accounts work together to keep the flow of your stock market trading and investment.

You cannot transfer funds from your Demat account to your bank account directly. Instead, all the transactions take place through a trading account. A trading account acts like a middle person between a bank account and a Demat account.

It is easy to convert physical shares to demat form—all you need to do appropriately is follow the proper procedure.

The cost of converting physical shares into demat form varies between depository participants (DPs) and depends on the number of shares. Generally, DPs charge dematerialization fees per certificate, along with other operational charges. It is advisable to check with the specific DP for the exact cost.