SEBI EASES RULES FOR RETAIL INVESTORS: PHYSICAL SECURITIES FOLIOS UNFROZEN, BUT DEMAT DECISIONS LOOM

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Sebi Unlocks Retail Investor Freedom: Physical Securities Freed, Choices Await in the Demat Realm!

In a significant move benefiting retail investors, the Securities and Exchange Board of India (Sebi) has decided to alleviate the burden on those holding physical securities. The regulatory body announced on Friday that the stringent requirement for investors to furnish PAN (Permanent Account Number) and Know Your Customer (KYC) details by October 1, which previously posed the risk of freezing folios, has been abolished.

The market regulator also discarded another provision stating that if folios remained frozen as of December 31, 2025, they would be referred to the administering authority under the Benami Transactions (Prohibitions) Act, 1988, and/or the Prevention of Money Laundering Act, 2002, by the registrar and transfer agent (RTA) or the listed company.

The decision to eliminate these provisions comes in response to feedback from the Registrars’ Association of India and investors, ensuring that investors holding physical securities will no longer face the threat of frozen folios for non-compliance.

Makarand M. Joshi, founder of MMJC & Associates, a corporate compliance firm, remarked, “Investors will now be able to receive dividend/interest payments and get their grievances redressed.”

However, it is essential for investors to note that Sebi has issued circulars mandating holdings in demat form to avail the benefits of bonus issues, rights issues, and stock splits. This prompts investors to make a thoughtful decision on whether to keep their holdings in demat or physical form.

Earlier, in a circular dated March 16, 2023, Sebi had mandated holders of physical securities in listed companies to provide PAN, nomination, contact details, bank account details, and specimen signatures for their corresponding folio numbers. Failure to furnish any of these documents or details by October 1, 2023, would result in folio freezing by the RTA.

Furthermore, the circular highlighted that frozen folio holders could lodge grievances or avail service requests from the RTA only after furnishing complete documents or details. Effective from April 1, 2024, these investors would also be eligible for any payment, including dividends, interest, or redemption, only through electronic modes.

Despite these regulatory efforts, RTAs and companies are encountering challenges in implementing the rules. B. Narasimhan, a veteran practicing company secretary and former chairperson of the Registrars’ Association of India, pointed out instances where companies faced difficulties reaching investors due to incorrect addresses or non-responsiveness. He highlighted the issue of genuine investors losing track of folio details and failing to designate nominees, leaving legal heirs uninformed and shares unclaimed.

While acknowledging Sebi’s positive step in the short term, Narasimhan emphasized the need to address the long-term challenge. In an era dominated by electronic processes, he stressed the importance of shareholders responding promptly to prevent fraud and alleviate the expenses incurred by companies in chasing down shareholders with physical shares.

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