How to Transfer Shares From One Demat Account to Another

What is a Share Transfer?

Consider your Demat account as a virtual safe. Instead of storing valuable securities (stocks, bonds, and mutual funds) in physical certificates, they are available to you as virtual holdings. The share transfer is merely the passing of those imaginary holdings from one vault to another. It is important to note that a transfer is not the same as a sale or a purchase— it is only a change of location or the person who stores it. This complete process is done electronically. No paper certificates are issued. This is handled by two central depositories, which are National Securities Depository Limited (NSDL) and stands for Central Depository Services (India) Limited (CDSL). These are final custodians of shares. The buying and the selling of shares becomes safe and easy. Understanding this process is very important to manage your financial portfolio.

Procedures and Methods to Transfer Shares

Trying to transfer shares has either 2 ways, both different of course depending on how easy you want it to be and how secure etc.

Physical transfer process - Offline Method: 

This option is based on paper-trail documents and best serves investors who want an on-paper experience or limited access to computer platforms. This choice provides an excellent paper record for every transaction.

 ⮚ Step 1: Request the Delivery Instruction Slip (DIS):

Your first move is to collect a DIS from your DP, such as your bank or broker. You can compare this slip to a cheque book, but for transferring shares.

  ⮚ Step 2: Fill in the DIS: 

This is the one that matters! This is the important one! You will need to consciously fill in your share details to transfer such as:

• ISIN (International Securities Identification Number): It gives every share or bond a special 12-digit identity.

• Target Demat Account details: This is the 16-digit Demat number of the person who will receive your securities. The Demat account’s 16-digit number is a combination of the Client ID and DP ID

• Transfer Type: You will have to mention your type of transfer; this information will be required as "Off-market", (meaning from one account to another account in the same depository.  Transfers "off-market" are defined as transfer transactions where both parties share the same depository whether that's CDSL to CDSL etc. and "inter-depository" where transfers are happening between different depositories (i.e. NSDL to CDSL, CDSL to NSDL). 

⮚ Step 3: Submit and Acknowledge:

Once you have Completed the DIS, then you will forward to your current broker. Make sure to get a stamped acknowledgement receipt; this will be your receipt of instruction.

⮚ Step 4: The Transfer Process:

The broker will put in the request and will make arrangements for the shares to be transferred out of your account and into a new account within 3-5 business days.

Online Method: 

For contemporary investors, the online method is simpler and faster. It is also an efficient process without the inconvenience of paper.

⮚ Step 1: Activate the Online Facility:

The first step is to register for the online transfer facility in the depository, i.e., via CDSL's "Easiest" or NSDL's "Speed-e".

⮚ Step 2: Verify and Give Permission: 

After registration, you can access the website. The only information you need to provide, in the case of an offline sale, is the beneficiary Demat account number and the ISIN of the shares.

⮚ Step 3: Proceed and Validate 

Upon completion of the form, the transfer can be proceeded with. The system will validate the request by sending a password or OTP to your mobile or email.

⮚ Step 4: Real-time Tracking:

The most pleasing aspect of the online process is that you can track your share transfer in real-time, giving you complete transparency and control over the process.

Parties to a Share Transfer

A share transfer is a standard event with following parties, and each party has its own role in the process.

• Investor: A person who buys shares is called investor and when he transfers such shares, he is called transferor and to whom he sells is called transferee.

• Depository: The middle link is your Depository Participant (DP). It can be a brokerage firm or a bank. Your Demat account is held with your DP, which may also execute your orders if it is providing trading services.

• Stock Exchange: The stock exchange is concerned only with "On-market" transfers, whereby shares are transferred from one account to another. In an "Off-market" transfer (a direct transfer of ownership), the stock exchange is not a participant 

Why Do Investors Transfer Shares?

The transfer of shares usually has an ultimate purpose, not just for the sake of transferring.

• Consolidating Holdings:

Many investors, over time, set up multiple Demat accounts and, ultimately, create a diversified holding. Transferring shares, however, allows a person to consolidate all of their holdings into one account, and makes it easier to manage your portfolio and make decisions.

• Changing Brokers:

An investor may have changed brokers to access better services, lower brokerage fees, a better trading platform, or just a better user experience.

• Transfer through Gift or Inheritance 

Shares can be gifted to a family member (parent, child, spouse) to help them establish some  financial independence or set them on a path to be financially secure. In the case of inheritance, shares from a deceased person's account should be passed on to the appropriate legal heir

•    Off-Market Private Share Sale

An investor might at times want to sell shares to a private buyer (e.g., a friend or family member) and not through the stock market. Transferring shares is a sale example.

•     Closure of Demat Account

When it is time to close a Demat account, the investor first needs to transfer all the shares out of the account into an active account. 

Points to Remember Prior to a Transfer

Before you hit "submit" or release that DIS slip, a bit of preparation can prevent huge headaches.

• Check All Information:

This is the most vital part. The entire transfer process will fail if there is even one incorrect number in the beneficiary's ISIN or Demat account number. Examine carefully, then again.

• Check for Restrictions:

Make sure the shares you want to transfer are not "locked." This may occur if they are taken as collateral for a loan or are subject to a lock-in period  from  a new situation in the public market. You cannot transfer locked shares until they are released.

• Know Transfer Fees:

Although brokers may offer free online transfers, they will charge a minimal fee for an offline transfer. The charges depend on your broker and whether the transaction is done intra or inter depository.

• Be Aware of Processing Time:

Offline transfers take some days to process, while online transfers will be much quicker. Organize the transfer based on whether you have a time-sensitive need to move.

• Keep Track of Your Records:

A digital or hard copy of the completed DIS slip, receipt for the transaction, and all communication is important. This record is of utmost importance if you have a disagreement or if there is an error.

Financial Impacts: Taxes and Fees 

It is critical to understand the financial impact of a transfer of shares because you do not want to be surprised. 

• Transfers inside your accounts:

When you are transferring shares owned under your own Demat accounts, there are usually no tax consequences, as your ownership has not changed.

• Gift of Shares:

When shares are gifted to an individual, the individual may have a tax implication based on the fair market value of the shares, if their aggregate gift exceeds ₹50,000 in a financial year. There are special tax rules for gifts between relatives (spouse, children, parents), which often have exempt status, so it is important to know the rules.

•  On-Market Transfer (Sale):

If you sell your shares and they are transferred into the buyer's account at an online broker, you will pay capital gains tax. The rate  of tax is dependent upon the period for which shares are held. If you sell short-term capital gains (STCG) within a year, it will be taxed at 15 percent. If you hold it for a year and then sell it, it will be considered long-term capital gain (LTCG); and the LTCG is 10 percent of the amount over ₹1 lakh.

For specific issues relating to the transfer, always obtain expert counsel from a certified tax or financial professional.

Final Word: 

Transfer of shares is not just a technical process; it is a strategic maneuver to maximize your portfolio. Investors transfer shares to consolidate their holdings, switch brokers, or simply move wealth amongst family members. For this reason, knowing the process is empowering. Today, there are many options for the investor, based on their circumstances and preferences. There are still a few "old methods" that may require paper or form-based transactions, while thousands of transfers happen on the Internet in seconds. With a modicum of common sense — i.e., you double-checked the facts, you looked for related fees/taxes, and you maintained a reasonable paper trail — transfers can be made with little to no hitch. A little prudence will ensure your investments continue to serve as a solid foundation of your financial aspirations.