Financial planner Gaurav Mashruwala still has investors who keep shares of leading companies wrapped in a red cloth (covering shares certificates with a red cloth is considered auspicious). And they face innumerable problems.
Many of these investors have inherited the shares which they don’t want to let go. “If one does not convert shares into dematerialised (Demat) format, they will find difficulty in every step, whether it is selling or storage,” says Mashruwala.
Liquidity, for one, is a major problem. Investors who want to sell these shares have to sell at a discount of at least 10 per cent, sometimes even more. This is because it is quite difficult to get buyers as the share transfer process is time consuming. The physical shares have to be sent to the company for transferring. And many times, signatures may not match which is another big headache.
No wonder, even finding a buyer for these shares is a pain, according to CJ George, MD, Geojit BNP Paribas Financial Services, adding that if you do there will be some amount that has to be paid as stamp duty as well. For instance, while you transfer the share certificate, a stamp duty has to be paid by the transferee. For instance, the person in whose name you are transferring the shares resides in Delhi, in that case, Delhi's stamp duty will be applicable.
States charge different stamp duties. Delhi charges 0.75 per cent, whereas Maharashtra charges 0.25 per cent (of the market value of the shares). If your shares are dematerialised, there is no charge on such transfers. There are other problems, too. Share certificates are mostly available in lots. So, if you own 100 shares in 10 certificates, how do you sell, say, 25?
Obviously, selling these shares is not a great idea. In order to get your shares dematerialised, follow these steps:
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* Open an account with a depository participant (DP) and get a unique client ID number.
* Choose a DP (bank/broker)
* Fill up the Dematerialisation Request Form (DRF) and surrender your physical shares
* Company's registrar and share-transfer agent will verify the documents
* The Demat shares will be transferred into the account
Yes, the process is time consuming but it is better than selling in the secondary market. Sudip Bandyopadhyay, managing director and chief executive at Destimoney said: “The process of dematerialsing shares will take at least a month’s time. But if you lose the share certificate and apply for a new one with the company, it can take you as long as six months”. Remember, holding on to these shares would mean a lot of other problems as well. When you shift home, the company will have to be informed, otherwise, the dividend income will end up somewhere else. Like it happened to Tilottama Kant, who owned 20 shares of Ultratech in physical form for the last 10 years, but the dividend landed up somewhere else as she had shifted her residence. Having it in the demat format would not have made her lose this income.
Storage is another issue, perhaps the most important one. An investor has to keep these shares in bank lockers or other places where it will be safe and more importantly, not get damaged. Then, in case of a bonus or stock split, there is the problem of how these shares will be given to the investor.
Your loan eligibility also reduces substantially – by 50 per cent if you are pledging physical shares with a bank. The maximum loan amount that can be given on physical shares cannot exceed Rs 10 lakh as against Rs 20 lakh that can be disbursed on demat shares.