Simple process needed for investors holding physical shares



At present, some shares are still held in physical form as India is still going through the process of popularising the demat format. A time will come when physical shares are finally retired

Over the last 20 years, India has seen boom in capital market. There has been tremendous increase in the number of companies and the shares issued by these companies. Many investors are participating in the share market today. Earlier, when companies sold their shares to public, share certificates were issued to investors in paper format and the owner of the shares had to physically hold the certificates. However, keeping shares in physical form is now leading to a series of problems.

Currently, many investors—especially senior citizens—who have physical shares are finding it difficult to convert them into demat form. These investors are also struggling to claim their bonus shares and split shares issued by their respective companies. A large number of investors still hold shares in physical form.

Most of these shares were purchased by investors as long term investment. Also, they didn’t intend to trade or sell their shares. Hence these investors didn’t convert their shares to demat form and pay for demat or annual maintenance charges of depository participants.

For these investors, bonus shares, rights or splits are issued in physical form. Investors often complain that the bonus, rights or split shares are lost in transit after the companies claim to have mailed them. When that happens, the process of getting duplicate share certificates is very tedious and complicated. The investor has to a lodge an FIR (first information report) along with many documents since there are chances that the share certificate would be misused—leading to a financial loss.

Heena Thakkar, a Mumbai-based investor—who had lost her physical share certificates recently—said, “To obtain duplicate share certificates, an investor has to prepare an affidavit, surety and indemnity bond agreement. The investor needs to publish a general notice in a government gazette declaring the loss of share certificates. The cost of the publication of the general notice is normally borne by the shareholder.”

Bikaner-based GD Binani, a senior citizen, said, “To minimise further issue of physical shares to these investors, SEBI (Securities and Exchange Board of India) should make it mandatory to collect their consent when a company intends to issue bonus or shares arising due to merger, split or consolidation, etc by forwarding suitable format to enable them to furnish their demat account details within 15 days of receipt either over email or submitting hard copy.”

Mr Binani further pointed out, “Very few companies call back physical shares at the time of issuing shares due to split, amalgamation, merger or demerger, while most companies issue new shares without calling back physical shares. In both the cases, old scrips become non-tradable and need to be destroyed. In first scenario, there are numerous examples where these investors suffer when they fail to surrender their holdings as they may have misplaced their shares. To get duplicate share certificates from their concerned company is not only time-consuming but also cumbersome.”

The shareholder would have to send his request for issue of duplicate share certificate accompanied by, affidavit, indemnity bond, surety form, proof of income of the surety and receipted copy of police complaint reporting loss of share certificate and voucher copy of advertisement released in local newspapers regarding loss of share certificate. To lodge an FIR is not an easy job for lay investors and especially for senior citizens who don’t have the stamina to follow the lengthy process of getting the duplicate share certificates. This is highly tiring for senior citizens people and needs urgent simplification, Mr Binani stressed.

The present process needs rectification and a simple investor-friendly process needs to be implemented. For example: Scrips should be released only on execution of an indemnity bond. Some companies are already following this process. This process not only helps the senior citizen but also reduces quantity of physical shares present in the market.

SEBI has finally decided to empower depositories to take penal action against companies that do not reconcile their demat and physical shares which exposes the equity market and investors to possible frauds. The depositories have the mandate to help companies convert their physical shares into demat form and thereafter maintain those shares.

GR Thengdi, a senior citizen, elaborated, “Change over from physical to electronic format of share holding has several advantages. Transfer of shares in electronic format does not require payment of stamp duty which the buyer had to pay for transfer of shares in physical format. The investor does not have to hold physical possession and record of shareholding. He can get all the information with few clicks on his computer. Hassles of issuing duplicate shares are gone forever.”

When the change of address is entered in demat account, it automatically gets updated with all companies whose shares are recorded in demat account. Investor gets regular statement of demat account. He can anytime log on to his account with depository.

Although dematerialising of securities is safe, care has to be taken to see that any authorised dealing is not done in your account. We must check our account regularly. At present, some shares are still held in physical form as India is still going through the process of popularising the demat format. A time will come when physical shares are finally retired, Mr Thengdi concluded.

Read more:

Understanding the basics of demat account



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