Today, shares are issued in dematerialised or digital form. But there was a time not too long ago when paper share certificates were the only way to hold stock in listed companies. Transacting through the paper share certificate system was an opaque, lengthy process. There were also high chances of forgery and frauds. Sometimes, certificates were stolen in transit and IPO allotments were manipulated. The system was unreliable.

So after the stock market scam of 1992, the electronic record of stock transactions was conceptualised. In 1996, share dematerialisation started with the setup of NSDL. Gradually, most available paper share certificates were converted to the demat form. The market saw the many benefits of electronic shares and the many demerits of paper shares. Therefore, investors gradually moved to demat accounts, while paper share transactions almost completely vanished over time — except for some holdouts.

Problems with paper shares

People still holding on to paper shares suffered as they received dividends late, and it was also time-consuming to sell or transfer their holdings. There was also the risk of losing the share certificates to theft and forgery.

In case of loss of shares or theft, getting duplicate certificates, too, is a time-consuming process that requires preparing an affidavit, surety and indemnity bond, filing an FIR, publishing a notice in a government gazette, contacting your company for duplicate copies with all the necessary information, and then finally receiving the duplicate copies. So, in a recent directive, Sebi notified that December 5, 2018 onwards, the transfer of paper shares would be forbidden. For transferring such shares, it would be mandatory to convert them to demat.

Ending tax evasion

There were several cases reported in the past in which paper shares were sold at a meagre price while the same stock was listed at a high premium. This way, the buyer scored huge capital gains and evaded taxes, causing losses to the exchequer. Ending paper transactions would also put an end to such activities. Also, there were cases in which the transaction history of paper shares was not properly recorded. In case the owner died, unscrupulous persons could the certificates in their name.

Can you still hold in paper?

Sebi’s move will restrict sale of paper shares. It's not mandatory to convert paper shares to demat form. It is, however, mandatory to have your shares in demat form if you want to transact. If you fail to dematerialise your paper shares by December 5, they will become illiquid. While they will still retain their value, they are of little use if they can't be traded. To continue deriving full value of your paper stocks, you should dematerialise them without delay. Also note that there are exceptions to the rule: transfers of paper shares will be allowed in case of the death of their owner, and for any change in the order of jointly held shares.

How to dematerialise shares

The first thing required to dematerialise paper shares in the shareholder's name is a demat account. You can open one with the NSDL or the Central Depository Services Limited (Depository) through Depository Participants (DP), meaning banks or stock brokers.

You can check with your bank if they have a demat trading platform through which you can open an account. Then, you would need the dematerialisation request form (DRF) to apply for converting paper shares to demat. You can get the DRF from your broker or bank. Fill out the details required in the form, sign it, and submit it to your DP along with your paper share certificates. Do not forget to keep photocopies of your shares with you. The DRF and your shares are then sent to the registrar of the company concerned. The company verifies the certificates and validates their ownership. Thereafter, it credits the dematerialised share in the DP account. The DP then credits the shares in the beneficiary’s account.

What are the costs involved?

The charges for dematerialisation vary from one DP to another, and it may range around Rs 100 to Rs 200 per share certificate and incidental charges (courier, photocopy etc). It may take around 30 days to complete the process and get shares in your demat account. Apart from this, if you’re opening a new demat account, you may need to pay the account opening charges with your DP which may be insignificant.

Don’t forget

Before you submit your shares for dematerialisation, ensure the certificates are in good shape. The beneficiary should first get defaced or mutilated certificates replaced from the RTA (registrar or transfer agent) or share issuer to avoid rejection at the time of dematerialisation. If the name mentioned on the share certificate doesn't match with the name in the demat account, the shareholder should first get the name changed in the demat account or on share certificate, depending on the situation and on the availability of the requisite identity proofs.

Be wary of signature mismatches; they too could lead to rejection of your dematerialisation request. Ensure your signs match when you fill up the DRF. If there is an objection from the RTA/issuer, the DP and the shareholder will get 15 days to respond, else the DRF along with the share certificates may be returned. A shareholder can then reapply with a new DRF.

Digitisation of finance is now a way of life. To get full value of your investments, for easy access, and for their safekeeping, ensure that you dematerialise your share certificates.

The writer is CEO, `BankBazaar.com`