Investors who still hold shares in physical form may have their folia frozen if they have not updated their details such as PAN, contact details, etc. and have not provided nomination information for the shares.
But now there is no need to panic, market regulator SEBI has abolished this condition, which is a news of great relief for the shareholders holding physical shares. This will have a big impact on investors, especially senior citizens, ensuring that they can update details in the coming period and do not have to worry about their investments getting frozen.
What are physical shares?
There are many investors who still hold shares in physical form. Many of these are old shares, because nowadays companies issue shares only in demat form.
One problem with old physical shares is that the registrar has less information about the investors.
When shares are held in demat form, basic information like PAN, email ID, mobile number, etc. are already present in the demat account and are used by the companies and their registrars to contact investors. This is not possible when the investor has a physical share certificate and the investor has to keep a lot of details updated for every company and for every folio.
Why is it needed?
The Securities and Exchange Board of India (SEBI) had issued a circular in which investors were required to update certain details when holding shares in physical form.
These details include PAN of all investors, nomination for the folio where the investor holds shares, contact details of the investor in the form of mobile number and email ID, bank account details of the investor and specimen signatures of all the investors. The initial deadline for this was March 31, 2023, but it was extended after the initial announcement.
Meaning of freezing the portfolio
The main part of the entire process of updating details of physical shares was to impose penalty if the process was not initiated by a stipulated date. It was said in the original circular that if the folio was not updated, it would be frozen.
Freezing the folio will mean that investors will not be able to settle or resolve any of their complaints regarding the folio and the dividend amount in the folio will also not be paid. It will be reversed only when the necessary details are submitted to the registrar or company. Now in a major change, the market regulator has eliminated the need to freeze the folio, and this is a big relief for the investor.
What will be its effect?
The impact of not freezing the folios will be significant as there are many cases where investors have not been able to update the details. There are many reasons why this is so. One is that for many investors it is actually quite difficult to provide the details, because these relate to shares that are lying somewhere with the investor but he may not have any track of them.
In many cases, it is difficult to give such details because one of the people in a joint account may not be alive. For this, one has to go through the entire process of transmission which may take several months to complete.
It is also a fact that the addresses of many investors change, so even though investors have physical shares, companies may not be able to contact them. Another situation which is more likely to happen with physical shareholders is that these investors may not be aware of the new requirements.
Investors who have physical certificates often abandon them and do not care about the details because they do not feel the need to take any action. To solve this problem, investors need to ensure that they update the necessary details. The decision not to freeze is a good thing for investors, because they will not have to face bad consequences immediately.
