Mandatory norms for shareholder holding share in physical form

A rise in inflation makes it a necessity to make an impactable investment decision. Being an investor, it is no secret that dealing in shares can be a valuable part of an investmentjourney. Holding shares in companies can maximize your income, build your savings and protect your money from inflation.

Dealing in the Indian financial market requires the shares to be in dematerialized form.However, there are some shareholders holding shares in physical format as on December 31, 2018, almost 4 percent of the total number of shares of the top companies were still held in physical form. That is 4180 million shares still in Non-Demat form. When Economics Times did the story in November last year, there were a total of 4230 million shares nearly worth 4 trillion held in physical form among the top companies. There wasn’t a single company in the benchmark index where all shares are dematerialized.

Physical Share certificates have no value after April 1, 2023. They yield zero value and zero return unless converted into a Demat of shares (Dematerialized) form. You can’t encash your paper share certificates.
Therefore, in order to realize the worth of your investments, the first and immediate step you need to take is to do your KYC. KYC is critical to converting physical shares into a Demat of shares format. If you do not do this on priority, your investment will get frozen compounding the problem further. SEBI has said that if any of the documents mentioned below are not made available on or before April 1, 2023, it will be freezed by RTA. SEBI has made KYC essential for all investors in its circular dated 3 November 2021. SEBI issued a circular on 3rd November 2021 in which common and simplified norms have been laid down with regard to the furnishing of PAN, KYC details, and Nomination. Later on, 24th December 2021 issued an additional circular with clarification w.r.t to the previous circular. This circular made it mandatory for the shareholder holding share in physical form to furnish details to the RTA (Registrar and Transfer Agent) of the Company i.e. Link-Intime
India Private Limited (Link-Intime).

Why is it important to convert shares in Dematerialized Form?

Dematerialization of shares has been introduced by the government for the ease of investors. There are numerous cons involved in holding shares in physical form One has to safely keep the share certificates in custody and ensure it will not be lost. Another major drawback is that the share certificate and transfer form have to be set to the company’s register to get a new certificate printed with their name after purchasing it from the broker.

On the other hand, there are countless benefits of shares in dematerialized form. Electronic transaction can be carried out easily through demat account. It allows you to have a nominee also. Demat account also provides benefits similar to a bank account for instance drawing cheques transferring funds etc. It is requested to the shareholders and their family members to do the required compliances if they are holding shares in physical form please do convert it into dematerized form before 1st April 2023 in regards of this an important circular has been laid down by the SEBI that shareholders which are holding shares in physical form are required to complete their KYC also required to submit the necessary documents before 1st April
2023 otherwise whichever shares are in physical form without the KYC are likely to be get
frozen.

Aapki amanat – aap tak.

The views expressed in this article are attributed to the writer, Shweta Gupta, Founder and CEO, MUDS Management – corporate finance and legal management consultancy