Shares were once stored in physical form prior to the advent of the Internet i.e. paper certificates. Every time a share is issued or traded, a physical share certificate must be issued or transferred. There was no doubt that this was a monumental and tedious task. It was before 1996 that physical paperwork was used. Following this, SEBI issued an advisory recommending the conversion of all physical shares into Demat accounts.
Let us fast forward to 2022, and we are still far from achieving the full conversion to demat. The industry is undoubtedly experiencing a painful and avoidable situation.
Physical share certificates are often subject to fraud, misplacement, or loss due to relocation or death. To safeguard shareholders’ interests and ensure that funds are not misappropriated, the Securities and Exchange Board of India (SEBI) imposed a KYC requirement on all investors in its circular dated 3rd November 2021.
An investor must submit a copy of their PAN card, email address, mobile telephone number, bank account information, and nomination information to the company/registrar & share transfer agent (RTA). Furthermore, it was stated that any folios whose documents/details are unavailable by April 1, 2023, will be frozen by the RTA. The RTA/company must notify the administrative authority of frozen folios after December 31, 2025, as required by the Benami Transactions (Prohibitions) Act, 1988, and the Prevention of Money Laundering Act, 2002.
With the assistance of the Ministry of Corporate Affairs, SEBI has established the Investor Education and Protection Fund (IEPF), which serves as a safeguard for shareholders’ funds and pools dividends, maturing deposits, share application interests, debentures, and interests of asset management companies. A minimum period of seven years must pass before the claim can be made.
By collecting and pooling funds from all the above-mentioned sources, the IEPF provides investors with a much-needed reprieve. An investor can request a refund for shares that remain unclaimed on the platform. A loss of shares has resulted in undue stress, confusion, and anguish among the rightful owners and successors.
Furthermore, SEBI announced on March 28, 2018, that it will not accept requests for securities transfers, except for transmission or transposition, unless the securities are stored at a depository in dematerialized form. On April 1, 2019, this regulation became effective. In the absence of death or inheritance, the aforementioned ruling does not apply to demat, transmission, or transposition (i.e., rearranging or interchanging the order of shareholders’ names).
To make the recovery process smooth and streamlined, all these measures have been taken to restore the shares to their rightful owners. The legal heir must initiate the transmission of the shares in the event of death, not a transfer.
Transfers are voluntary actions initiated by shareholders, while the transmission is a statutory function. The term “recovery of shares” refers to the processes involved in recouping such securities via the transfer of shares, recouping bonus issues, and reclaiming unclaimed dividends. IEPF’s primary concern is protecting investors’ interests.
Detailed Procedure for Recovery of Shares from IEPF
If you wish to receive a refund or recover shares in your name, please complete and submit Form IEPF-5 via the MCA’s website. To complete this form, the following information must be provided:
- Particulars of the applicant
- The company’s particulars
- Detailed information regarding the shares to be claimed
- Information regarding the amount claimed
- An overview of securities and deposits by year
- An Aadhaar number or a passport number, OCI number or PIO card number (in the case of foreigners and NRIs)
- Details of the applicant’s bank account (which is linked to their Aadhar if the applicant is not an NRI or foreign national)
The IEPF Authority’s responsibility is to decide on the claimant’s reimbursement application within 60 days after receiving the verification report from the appropriate firm that verified the claimant’s application.
Now that we know the simple process of recovery of your shares, Rurash has also been assisting investors who have their shares in physical form. People often lose out on gaining on their investments when they are unable to convert physical shares to a dematerialized format, and thus the shares are rendered un-tradable.
Experts at Rurash often assist people with their minimum intervention and in the shortest of time get their physical share certificates to get converted to the dematerialized format. The process is fairly simple too.
Process of Physical Share certificate dematerialization
The first step in trading paper shares is to convert them into a dematerialized form. A dematerialization process involves converting physical shares of a company into electronic formats. The shares are dematerialized and deposited into a new Demat account.
However, you should keep in mind that only shares of companies that are active and trading on the exchange may be converted. If the shares are delisted now from the stock exchange and are not listed anymore, then you may have missed the opportunity – they have now lost all value except for the paper that they are printed on
For companies that are still trading, here is a complete step-by-step guide on how to convert physical shares into Demat shares.
1) Open a Demat account
A Demat account can be opened by any depository participant – a stockbroker who links investors with depository institutions – by submitting KYC documents, such as address proofs and identity proofs (PAN cards, Aadhar cards, passports, etc), in addition to a photograph.
You can open a Demat account through several different depository participants, including banks, stock brokerage companies, or private and government companies. Companies also allow customers to open Demat accounts online by submitting scanned KYC documents.
Please keep in mind that the Demat account will need to be opened in the names of all shareholders if the shares are held jointly. Additionally, the new account must have the same order of holding (first and second) as the physical account.
2) Submit the DRF form along with the paper shares
As soon as your Demat account is opened, you may request the conversion of your physical share certificates into dematerialized form. Paper shares must be surrendered to the Demat company along with a Dematerialisation Request Form. For shares of different companies, use separate forms.
In addition, you should deface each paper share certificate by stating ‘Surrendered for Dematerialisation’. In exchange for your surrendered shares, you will receive an acknowledgment slip.
Your physical shares will be destroyed as soon as the request is approved following a verification process, and you will receive the dematerialized shares in your Demat account.
Congrats, you are now able to sell or transfer your Demat shares and realize their value of them. With Rurash’s Demat services, you can easily convert your unproductive assets into profit-yielding money instruments.
Rurash Financials is one of India’s investment management firms, providing financial solutions to augment the client’s wealth and build a legacy.