Getting physical: Demat's still a bad word for many
Possessing shares in an electronic or dematerialised (demat) form is a great convenience to investors as they can trade easily, without facing problems like loss, theft or bad delivery of shares.
By Vijay Gurav, TNN |
MUMBAI: Possessing shares in an electronic or dematerialised (demat) form is a great convenience to investors as they can trade easily, without facing problems like loss, theft or bad delivery of shares.
But for all these advantages, introduced almost a decade back in the country, there are investors who still hold to their physical shares. Blue-chip companies like HLL, ITC, Bajaj Auto and Hero Honda are some of the notable examples where shareholders hold 36-58% of equity capital in the physical form, according to shareholder details filing of these companies for the quarter ended June 30, ‘06 with the BSE.
Among the four companies, shareholders of two-wheeler major Hero Honda hold the highest 58% of the company’s equity capital of nearly 20 crore shares in physical form. This is followed by HLL with a 57% equity in physical form, Bajaj Auto with 43% and ITC with 36%.
The percentage of physical shares is significantly high among public sectors companies (PSUs) in which a majority of equity capital is held by the government. The government stake in PSU is generally locked for a prolonged period until the same or the part of it divested by way of strategic sale or initial public offering (IPO).
According to a senior official with a depository, genuine long-term investors have a lot of faith in their companies and so are unwilling to sell their investments even if returns are significantly high.
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This tendency is seen particularly in case of shareholders of established, profit-making companies, which have been maintaining track record of good dividend payout over the past many years, he said. HLL, ITC, Bajaj Auto and Hero Honda are examples of this phenomenon.Interestingly, a few companies like GSFC and GNFC, it is learnt, had done a lot of rural marketing and offered its shares to people from villages. The problem with such investors is that they may not be able to trade easily in the market due to lack of knowledge about securities trading or non-availability of demat facilities in these areas.
For some investors, there is sentimental value attached to their shareholding and so having shares in physical form is a matter of pride for them, said a broker. The depository system in the country has seen a good progress with a growing number of companies and investors adopting the demat culture, which has many advantages like saving on cost, time and convenience of trading and settlement, he said.
Under the Depositories Act of ‘96, an investor can hold shares either in physical or electronic form. However, Sebi has notified that settlement of trades in all listed securities should take place only in the demat mode.
While investors can trade in up to 500 shares in physical form, it is hardly being done due to fears of bad delivery on account of mismatch of signatures, forgery of signatures, and bogus certificates.
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