Can We Still Buy Physical Shares Directly?

Does it still make sense to buy physical shares issued by a company directly? In today's digital age, the investment landscape has undergone significant changes. Traditionally, physical shares represented possession of equity in a company, but with the advent of electronic trading, the landscape has shifted towards electronic securities, specifically dematerialized shares. Let's explore the current situation, the benefits of electronic trading, and why physical share purchases now lag behind.

Direct Stock Purchase Plans (DSPP)

Historically, several companies provided a mechanism for investors to purchase shares directly from the company. Some companies still offer such plans, but these are becoming increasingly rare in the digital age. Here are a few examples:

Home Depot (HD) Coca-Cola (KO) Starbucks (SBUX) Wal-Mart (WMT) Kellogg (K) IBM (IBM)

These plans allow investors to buy shares directly from the company without the need for a broker. However, as we move into the digital era, the benefits of traditional paper-based purchasing are diminishing.

The Outdated Nature of Physical Shares

While it is still technically possible to buy physical shares, the process is outdated and inefficient. Governments, such as the Securities and Exchange Board of India (SEBI), have introduced reforms to phase out physical share certificates. Electronic trading, primarily through dematerialized accounts (demat accounts), has become the preferred method for stock transactions due to several reasons:

Speed and Efficiency: Electronic trading is faster and more efficient, allowing investors to buy and sell shares more quickly. Security: Electronic transactions are more secure, reducing the risk of fraud and physical share certificates being lost or damaged. Transparency: Electronic trading provides greater transparency, making it easier for investors to track their holdings and transactions. Accessibility: Demat accounts can be opened online, making it easier for a wider range of investors to participate in the stock market.

The Dematerialization Process

Dematerialization, often referred to as demat, is the process through which physical share certificates are converted into an electronic form. This process is facilitated through depositories and their participants, known as Depository Participants (DPs).

There are two depositories operational in the Indian financial market:

National Securities Depository Ltd. (NSDL): With over 1.39 crore demat accounts as of 30-06-2015. Central Depository Service Ltd. (CDSL): With over 9.8 million demat accounts as of 30-06-2015.

Investors can own shares in both physical and dematerialized forms. However, given the benefits of electronic trading, it is advisable to hold shares in demat form.

Conclusion

In the digital age, the traditional method of buying and holding physical shares is becoming obsolete. Electronic trading, facilitated through demat accounts, offers numerous advantages over the outdated system of physical shares. While some legacy companies still offer direct stock purchase plans, the future of stock trading lies in electronic transactions. If you are considering investing in the stock market, it is highly recommended to open a demat account and leverage the benefits of digital trading.