What is Dematerialisation of Shares? : Meaning, Process & Benefits

What is Dematerialisation?

Dematerialization is like turning your paper stocks and bonds into digital ones. Instead of dealing with physical certificates, everything is stored electronically. Let us delve deeper into the topic of dematerialization.

The Securities and Exchange Board of India, or SEBI, has registered two depositories: Central Depository Services India Limited (CDSL) and National Securities Depository Limited (NSDL).

Why is Dematerialisation Needed?

  • Dematerialization eliminates the burden of handling stacks of paper documents, streamlining record-keeping processes.
  • Digitizing shares prevents potential disruptions in the stock market caused by the loss of critical paper documents.
  • Dematerialization saves money by cutting stamp duty, avoiding duplicate certificate expenses, and directly crediting bonuses.

Understanding Demat Accounts:

Demat Account is short for Dematerialisation Account. Introduced in 1996, Demat accounts modernized investing in India by digitizing securities handling. 

A Demat Account stores details of your shares and securities digitally, removing the need for paper documents. This allows for easy online monitoring and management of your investments, offering great convenience.

Process and Steps of Dematerialisation:

How can one convert physical holding into electronic holding i.e. how can one dematerialise securities?

Once have opened an Demat Account to dematerialise physical securities:

Obtain a Demat Request Form (DRF) from your DP and fill it out for each ISIN (International Securities Identification Number).

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Submit the filled DRF along with the physical certificates to your DP.

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The DP notifies the Depository of the dematerialisation request electronically.

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The DP sends the certificates to the registrar of the Issuer Company.

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The registrar confirms the dematerialisation request with the depository.

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Upon dematerialisation, the registrar updates accounts and informs the depository.

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The depository updates its accounts and informs the DP.

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The DP updates the investor’s Demat account.

Benefits of Dematerialisation:

  • Easy Transactions: Conduct trades digitally, from anywhere, using a computer or smartphone.
  • Hassle-Free Fund Transfers: Link your Demat account with your bank for quick electronic transfers.
  • Enhanced Security: Eliminate risks like theft or damage associated with physical documents.
  • Nomination Convenience: Nominate someone to manage your account in your absence.
  • Environment Friendly: Reduce paper usage and administrative costs.
  • Loan Accessibility: Use securities as collateral to secure loans.
  • Convenient Monitoring: Track your investments from anywhere, maximizing potential profits.
  • Direct Corporate Benefits: Receive dividends and other perks directly into your account.
  • Versatile Holding: Store not only shares but also various financial instruments like debt instruments, mutual fund units, government bonds, and exchange-traded funds in your Demat account.

Conclusion

Dematerialization modernizes portfolios, adhering to regulations. Choose a reliable DP, handle paperwork, and transition smoothly to electronic shares for secure, efficient investing.

FAQs

Dematerialisation typically takes around 30 days. For delays, contact your DP or escalate to NSDL/CDSL.

Yes, multiple accounts can be opened with the same or different DPs, following KYC norms.

Yes, an investor can close one Demat account and transfer securities to another account with a different DP.

Yes, you can convert Demat shares back to physical form using a Rematerialisation Request Form (RRF) through your DP.

Arunava Chatterjee
Founder of INVESMATE. I am a Certified Research Analyst, Value & Growth Investor, Trainer and Tech Entrepreneur. With 15 years of capital market experience, I have trained 10000+ students on INVESMATE. I have created several YouTube videos, mostly related to in-depth fundamental analysis.



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