The question of how to store shares has been largely resolved by regulation — but it hasn’t been entirely eliminated as a practical concern. Millions of Indian investors still hold physical share certificates from purchases made decades ago, inherited from family members, or received through rights issues and bonus allotments at companies that were slow to dematerialise. And a far smaller but real group of investors in unlisted or recently dematerialised companies may find themselves holding paper certificates for assets whose digital transfer they haven’t yet completed.
Understanding the comparison between physical and digital storage — and the clear regulatory direction that has made digital holding not just superior but effectively mandatory — is foundational knowledge for any investor who discovers old share certificates in a family file or receives a corporate action in physical form.
How Physical Share Certificates Work and Why They’ve Become Obsolete
A physical share certificate is a paper document issued by a company certifying that the named holder owns a specified number of shares. It carries the company’s seal, the shareholder’s name, the certificate number, the distinctive numbers assigned to the specific shares, and the signature of authorised signatories.
Historically, this certificate was the proof of ownership. Transferring shares meant physically endorsing and delivering the certificate to the buyer, registering the transfer with the company, and waiting for a new certificate to be issued in the buyer’s name. The process took weeks, generated enormous paperwork, and created a system where physical security, forgery, loss, and postal delays determined the quality of the investment experience.
SEBI addressed this comprehensively through the dematerialisation mandate. From April 2019, SEBI mandated that all transfers of listed company shares must be in dematerialised form — physical certificates cannot be used to transfer ownership for listed companies. From the same period, any corporate action — rights issue, bonus shares, mergers — results in shares being credited only in Demat form, not as new physical certificates.
The practical consequence is decisive: physical share certificates for listed companies can no longer be transferred without first being dematerialised. They are effectively illiquid in physical form.
The Dematerialisation Process: Converting Physical to Digital
If you hold physical certificates, the process of converting them to Demat form — dematerialisation — is straightforward but requires patience.
Submit the physical certificates to your Depository Participant — your broker — along with a Dematerialisation Request Form specifying the ISIN, company name, and number of shares. Your DP forwards the DRF to the company’s Registrar and Transfer Agent. The RTA verifies the certificates and cancels them physically before crediting the equivalent units electronically to your Demat account.
The process typically takes fifteen to thirty working days end-to-end. Some RTAs with older systems or companies with complex certificate histories take longer — up to sixty days in certain cases. During this period, the physical certificates are held in transit and neither the physical nor the digital holding is accessible.
Demat holdings once credited are permanent electronic records with CDSL or NSDL — the two national depositories. They cannot be lost, stolen, forged, or physically damaged.
Why Digital Storage Is Categorically Superior
The comparison between physical and digital share storage is not a matter of preference — it is a question of functionality.
Physical certificates cannot be sold without dematerialisation for listed companies. They can be lost in a fire, flood, or theft. They can be forged. They can deteriorate physically. They require safe physical storage. They generate administrative complexity for nominees during estate transmission. And they earn no returns while sitting in a locker — the corporate actions that would credit bonus shares or rights issue allotments may not reach an investor who hasn’t updated their address with the RTA.
Digital holdings in a Demat account face none of these risks. They are accessible 24 hours through your broker’s platform. They are automatically credited with corporate actions. They are protected by the depository’s settlement guarantee infrastructure. They can be pledged as collateral, transferred to nominees electronically, and verified against the depository’s authoritative records at any time.
The only scenario where the physical certificate retains any unique relevance is as historical documentation — for tax cost basis calculation on very old shares where the original purchase price needs to be established. Even here, the Demat account’s transaction history typically maintains this record once dematerialisation is complete.
What to Do With Old Physical Certificates Found in Family Documents
If you discover old physical certificates, verify two things before initiating dematerialisation. First, confirm the company is still listed and active — some companies in old certificate files may have been delisted, merged, or wound up. Check the company’s current status on the BSE or NSE website using the company name or old scrip code. Second, check whether the shares under the certificate number are already reflected in your Demat account — some corporate actions and past transfers may have already dematerialised them without the physical certificate being surrendered.
If the shares are active and not yet in Demat form, initiate dematerialisation immediately. Holding physical certificates for actively traded listed companies serves no financial purpose and only delays your access to the liquidity those shares represent.
Frequently Asked Questions (FAQs)
Q1. I have physical certificates for a company that was merged into another entity five years ago. What happens to those shares?
A: Corporate mergers result in the automatic conversion of the old company’s shares into the new entity’s shares at the swap ratio defined in the merger scheme. If the merged company’s shares were dematerialised, the new company’s shares would have been credited to existing Demat holders automatically. For physical certificate holders who didn’t participate in the dematerialisation, the RTA of the surviving company typically maintains a record of unclaimed shares pending conversion. Contact the surviving company’s RTA with the original certificate to initiate the conversion and dematerialisation.
Q2. Can I store shares of unlisted companies in a Demat account?
A: Yes. Since SEBI mandated dematerialisation for unlisted company securities as well — in a phased rollout — shares of unlisted companies can and should be held in Demat form. The process is identical to listed share dematerialisation but goes through the unlisted company’s RTA. Holding unlisted company shares in Demat form facilitates transfers, pledging, and eventual conversion if the company lists on a stock exchange.
Q3. Are physical certificates of zero value once dematerialisation is mandatory?
A: Not zero value — but significantly diminished practical value. The certificate represents a legitimate ownership claim that can still be converted to Demat form through the RTA process. The shares themselves retain their market or intrinsic value. What the physical certificate cannot do is function as a transfer instrument — it must be dematerialised before the shares can be sold or transferred. The certificate’s value is entirely contingent on successful dematerialisation.
Q4. What happens to physical certificates after they are submitted for dematerialisation?
A: The physical certificates are physically cancelled by the RTA — typically by perforating or stamping them as “cancelled” — and are retained by the RTA as part of their records. They are not returned to the investor. Once the dematerialisation credit is reflected in your Demat account, the physical certificates have been extinguished as ownership documents. Keep a copy of the cancelled certificate numbers for your records before submission.
Q5. If I lose a physical share certificate before dematerialising it, can I still recover the shares?
A: Yes, but through a more involved process. You must report the loss to the company’s RTA, file a police complaint, publish a notice in a newspaper as required by the company, and submit an indemnity bond before the RTA issues a duplicate certificate. Once a duplicate is issued, it can be dematerialised through the standard process. The procedure protects against fraudulent use of the lost certificate while ensuring the genuine owner’s rights are preserved.
