Why Do Physical Shares Need More Attention?

Why Do Physical Shares Need More Attention?. Physical shares, also known as paper-based stock certificates, were once the standard way of proving ownership in a company. However, with the rise of online trading and dematerialization (demat) accounts, most investors have shifted to electronic shares. Despite this, many people still hold physical share certificates, often without realizing the potential problems associated with them. This article explains in simple terms why physical shares need more attention and what investors should do about them.
What Investors Should Do About Physical Shares?
1. Risk of Losing or Damaging Physical Shares
One major problem with physical shares is that they can get lost, stolen, or damaged over time. Unlike digital shares stored safely in a demat account, paper certificates need careful handling. 
• Loss and Theft: If you lose your physical shares, you must go through a lengthy and complicated process to get duplicates. You can issue the duplicate shares for lost or misplaces share certificate.
• Damage Over Time: Paper certificates can become unreadable due to wear and tear, making them difficult to use.
• Fraud and Forgery: Physical shares can be forged or transferred illegally without the owner's knowledge.
2. Government and SEBI Regulations
The Securities and Exchange Board of India (SEBI) has introduced rules to encourage investors to convert their physical shares into electronic form. Since April 2019, SEBI has restricted the transfer of physical shares, making it necessary to convert them into demat form.
• No Direct Transfers Allowed: You cannot sell or transfer physical shares unless they are first converted into a demat account.
• KYC (Know Your Customer) Requirements: Investors must provide identity and address proof for compliance purposes, which can be challenging for those with old physical shares.
• Risk of Unclaimed Shares: If shares remain unclaimed for too long, they may be transferred to the Investor Education and Protection Fund (IEPF), requiring a long process to retrieve them.
3. Challenges in Converting to Demat Form
Many investors are unaware of the steps required to convert their physical shares into demat form. Here are some common difficulties:
• Lack of Awareness: Older investors, in particular, may not know the benefits of dematerialization.
• Missing Documents: Some investors may have misplaced their original certificates, making it harder to convert them.
• Legal Issues in Joint Ownership: If shares are owned jointly or inherited, all legal heirs must provide documents to complete the transfer process.
4. Limited Options for Selling Physical Shares
Investors holding physical shares face challenges when trying to sell them:
• Cannot Sell Directly: Unlike dematerialized shares, physical shares cannot be sold on stock exchanges until they are converted.
• Lower Market Value: Some companies allow buybacks of physical shares, but often at a discounted rate.
• Difficult to Use as Collateral: Banks and financial institutions prefer dematerialized shares when offering loans.
5. Problems in Inheriting Physical Shares
When a person passes away, their physical shares may become difficult for heirs to claim:
• Complex Legal Process: If no nominee is registered, legal heirs may need to go through court proceedings to claim the shares.
• Signature Mismatches: If the signature on the certificate does not match current records, extra verification is needed.
• Need for Proper Documentation: Heirs may need to submit affidavits, succession certificates, and other legal papers.
6. Missing Out on Company Benefits
Many companies issue dividends, bonus shares, or rights issues. Investors holding physical shares may miss these benefits due to outdated or incorrect records.
• Unclaimed Dividends: If bank details are not updated, dividend payments may not reach investors.
• Exclusion from Stock Splits and Bonuses: Shareholders with physical shares may not receive automatic benefits like bonus shares.
• Processing Delays: Corporate actions take longer for physical share certificates compared to electronic shares.
7. Government and SEBI Initiatives to Help Investors
Regulators and the government have taken steps to protect investors and encourage dematerialization.
• Mandatory Dematerialization: SEBI has made it necessary to hold shares in demat form for trading.
• Investor Education Programs: Various institutions provide awareness programs on how to convert physical shares into electronic format.
• Claiming Unclaimed Shares: The government has set up mechanisms to help investors reclaim lost or forgotten shares.
How to Protect Your Physical Shares?
To avoid risks associated with physical shares, investors should take proactive steps:
• Convert to Demat: Move your physical shares to a demat account as soon as possible.
• Update Personal Details: Ensure your KYC, contact details, and bank details are up to date.
• Store Documents Safely: Keep original share certificates in a secure place and maintain digital copies.
• Check for Unclaimed Shares: If you have old physical shares, verify if they are still valid and claim them if necessary.
Conclusion
Physical shares, while still in existence, pose significant challenges and risks for investors. Since the financial system is moving toward full digitization, investors should take necessary steps to dematerialize their shares. By acting now, investors can secure their wealth, ensure compliance with regulations, and enjoy the benefits of hassle-free stock ownership.
If you need any help or support in Recovery of Shares from IEPF, you can book a consultation with our expert through mail info@ccoffice.in or Call/Whatsapp us at +91 9988424211.
FAQs
Q1. Why do physical shares require more attention compared to dematerialized shares?
Ans. Physical shares are prone to risks such as theft, loss, forgery, and damage. Unlike dematerialized shares, which are held electronically, physical shares require manual record-keeping and proper safekeeping, making them harder to track and manage.
Q2. What are the risks associated with holding physical share certificates?
Ans. Physical shares are vulnerable to loss, misplacement, theft, damage, and forgery. There is also the risk of ownership disputes or fraud, where unauthorized persons may try to claim the shares through forged documents.
Q3. Why is it necessary to dematerialize physical shares?
Ans. Dematerialization (conversion of physical shares into electronic form) ensures safety, ease of trading, and regulatory compliance. SEBI has made it mandatory to dematerialize shares for any sale or transfer to prevent fraud and improve transparency.
Q4. How can investors recover lost or damaged physical share certificates?
Ans. Investors must file a First Information Report (FIR) in case of loss or theft, publish a public notice in newspapers, and apply for a duplicate share certificate from the issuing company by submitting relevant documents, including an indemnity bond and affidavit.
Q5. What happens if the shareholder passes away and their physical shares are unclaimed?
Ans. If a shareholder passes away, legal heirs must apply for share transmission by submitting a death certificate, succession certificate, or probate of will along with KYC documents to the company or registrar. If unclaimed for a long time, the shares may be transferred to the Investor Education and Protection Fund (IEPF).
Q6. Can physical shares still be traded in the stock market?
Ans. No, SEBI has banned the transfer of physical shares since April 1, 2019. However, investors can convert their physical shares into demat form to sell or trade them in the stock market.
Q7. What should investors do if they find old, forgotten physical share certificates?
Ans. Investors should first check the status of the company (active, merged, delisted, or liquidated). If valid, they can convert them into demat form by opening a Demat account and submitting the certificates to the Depository Participant (DP). If the shares are eligible, they can reclaim their value.

Physical shares, also known as paper-based stock certificates, were once the standard way of proving ownership in a company. However, with the rise of online trading and dematerialization (demat) accounts, most investors have shifted to electronic shares. Despite this, many people still hold physical share certificates, often without realizing the potential problems associated with them. This article explains in simple terms why physical shares need more attention and what investors should do about them.

What Investors Should Do About Physical Shares?

1. Risk of Losing or Damaging Physical Shares

One major problem with physical shares is that they can get lost, stolen, or damaged over time. Unlike digital shares stored safely in a demat account, paper certificates need careful handling.

• Loss and Theft: If you lose your physical shares, you must go through a lengthy and complicated process to get duplicates. You can issue the duplicate shares for lost or misplaces share certificate.

• Damage Over Time: Paper certificates can become unreadable due to wear and tear, making them difficult to use.

• Fraud and Forgery: Physical shares can be forged or transferred illegally without the owner's knowledge.

2. Government and SEBI Regulations

The Securities and Exchange Board of India (SEBI) has introduced rules to encourage investors to convert their physical shares into electronic form. Since April 2019, SEBI has restricted the transfer of physical shares, making it necessary to convert them into demat form.

• No Direct Transfers Allowed: You cannot sell or transfer physical shares unless they are first converted into a demat account.

• KYC (Know Your Customer) Requirements: Investors must provide identity and address proof for compliance purposes, which can be challenging for those with old physical shares.

• Risk of Unclaimed Shares: If shares remain unclaimed for too long, they may be transferred to the Investor Education and Protection Fund (IEPF), requiring a long process to retrieve them.

3. Challenges in Converting to Demat Form

Many investors are unaware of the steps required to convert their physical shares into demat form. Here are some common difficulties:

• Lack of Awareness: Older investors, in particular, may not know the benefits of dematerialization.

• Missing Documents: Some investors may have misplaced their original certificates, making it harder to convert them.

• Legal Issues in Joint Ownership: If shares are owned jointly or inherited, all legal heirs must provide documents to complete the transfer process.

4. Limited Options for Selling Physical Shares

Investors holding physical shares face challenges when trying to sell them:

• Cannot Sell Directly: Unlike dematerialized shares, physical shares cannot be sold on stock exchanges until they are converted.

• Lower Market Value: Some companies allow buybacks of physical shares, but often at a discounted rate.

• Difficult to Use as Collateral: Banks and financial institutions prefer dematerialized shares when offering loans.

5. Problems in Inheriting Physical Shares

When a person passes away, their physical shares may become difficult for heirs to claim:

• Complex Legal Process: If no nominee is registered, legal heirs may need to go through court proceedings to claim the shares.

• Signature Mismatches: If the signature on the certificate does not match current records, extra verification is needed.

• Need for Proper Documentation: Heirs may need to submit affidavits, succession certificates, and other legal papers.

6. Missing Out on Company Benefits

Many companies issue dividends, bonus shares, or rights issues. Investors holding physical shares may miss these benefits due to outdated or incorrect records.

• Unclaimed Dividends: If bank details are not updated, dividend payments may not reach investors.

• Exclusion from Stock Splits and Bonuses: Shareholders with physical shares may not receive automatic benefits like bonus shares.

• Processing Delays: Corporate actions take longer for physical share certificates compared to electronic shares.

7. Government and SEBI Initiatives to Help Investors

Regulators and the government have taken steps to protect investors and encourage dematerialization.

• Mandatory Dematerialization: SEBI has made it necessary to hold shares in demat form for trading.

• Investor Education Programs: Various institutions provide awareness programs on how to convert physical shares into electronic format.

• Claiming Unclaimed Shares: The government has set up mechanisms to help investors reclaim lost or forgotten shares.

How to Protect Your Physical Shares?

To avoid risks associated with physical shares, investors should take proactive steps:

• Convert to Demat: Move your physical shares to a demat account as soon as possible.

• Update Personal Details: Ensure your KYC, contact details, and bank details are up to date.

• Store Documents Safely: Keep original share certificates in a secure place and maintain digital copies.

• Check for Unclaimed Shares: If you have old physical shares, verify if they are still valid and claim them if necessary.

Conclusion

Physical shares, while still in existence, pose significant challenges and risks for investors. Since the financial system is moving toward full digitization, investors should take necessary steps to dematerialize their shares. By acting now, investors can secure their wealth, ensure compliance with regulations, and enjoy the benefits of hassle-free stock ownership.

If you need any help or support in Recovery of Shares from IEPF, you can book a consultation with our expert through mail info@ccoffice.in or Call/Whatsapp us at +91 9988424211.

FAQs

Q1. Why do physical shares require more attention compared to dematerialized shares?

Ans. Physical shares are prone to risks such as theft, loss, forgery, and damage. Unlike dematerialized shares, which are held electronically, physical shares require manual record-keeping and proper safekeeping, making them harder to track and manage.

Q2. What are the risks associated with holding physical share certificates?

Ans. Physical shares are vulnerable to loss, misplacement, theft, damage, and forgery. There is also the risk of ownership disputes or fraud, where unauthorized persons may try to claim the shares through forged documents.

Q3. Why is it necessary to dematerialize physical shares?

Ans. Dematerialization (conversion of physical shares into electronic form) ensures safety, ease of trading, and regulatory compliance. SEBI has made it mandatory to dematerialize shares for any sale or transfer to prevent fraud and improve transparency.

Q4. How can investors recover lost or damaged physical share certificates?

Ans. Investors must file a First Information Report (FIR) in case of loss or theft, publish a public notice in newspapers, and apply for a duplicate share certificate from the issuing company by submitting relevant documents, including an indemnity bond and affidavit.

Q5. What happens if the shareholder passes away and their physical shares are unclaimed?

Ans. If a shareholder passes away, legal heirs must apply for share transmission by submitting a death certificate, succession certificate, or probate of will along with KYC documents to the company or registrar. If unclaimed for a long time, the shares may be transferred to the Investor Education and Protection Fund (IEPF).

Q6. Can physical shares still be traded in the stock market?

Ans. No, SEBI has banned the transfer of physical shares since April 1, 2019. However, investors can convert their physical shares into demat form to sell or trade them in the stock market.

Q7. What should investors do if they find old, forgotten physical share certificates?

Ans. Investors should first check the status of the company (active, merged, delisted, or liquidated). If valid, they can convert them into demat form by opening a Demat account and submitting the certificates to the Depository Participant (DP). If the shares are eligible, they can reclaim their value.

Why Do Physical Shares Need More Attention?

What Investors Should Do About Physical Shares?

How to Protect Your Physical Shares?

Conclusion

FAQs

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