What is Dematerialisation

With rapid technological advancements in the fintech world, investors and traders need to familiarise themselves with the latest methods of share market trading. The first concept that a market investor needs to know is the concept of dematerialisation of shares. Here is everything one must know about what is dematerialization.

What is the dematerialisation of securities?

Holding and trading shares and securities in their physical form can pose a risk of forgery, loss of certificates, and delays in the transfer of securities. Dematerialization is the conversion of physical share certificates into an electronic format to overcome the hassles of keeping physical copies of securities. Dematerialization meaning, is associated with an electronic version of physical shares and securities. A depository (National Securities Depository Ltd. and Central Depository Services (India) Ltd.) has the responsibility to store the shares electronically.

Process of dematerialization

The dematerialisation process is as given below:

  1. Dematerialisation of certificates begins with the opening of a Demat account. The shareholder can open a Demat account with a Depository Participant (DP) of his choice.
  2. The certificate holder must take a Dematerialization Request Form (DRF) from the DP and submit it. It should be submitted with the physical copy of the share certificates. They should mention ‘Surrendered for Dematerialization’ under every certificate.
  3. The DP processes the dematerialisation request and certificates to the company, registrars, and transfer agents.
  4. On approval of the request, the physical certificates get destroyed and the depository receives a confirmation of dematerialisation.
  5. The depository informs the DP about the dematerialisation and the asset holdings reflects in an electronic form in the shareholder’s demat account.

Benefits of Dematerialisation

  • Carrying electronic versions of share certificates is easier than physical securities. An investor can manage his securities just by using a computer or a smartphone.
  • Dematerialisation reduces the cost of holding share certificates. There is no stamp duty on electronic certificates, and the holding charges are nominal. A shareholder can buy even a single share certificate or odd lots as per his choice and capacity. The transaction time for buying and selling electronic certificates is much less than the physical shares.
  • Dematerialisation requires including a nominee, which gives the right to the Demat account holder to allow the nominee to operate his account on his behalf.
  • Electronic dealings in share certificates eliminate the risk of fraud, theft, damage, etc.
  • The electronic version of share certificates is more liquid than the physical form. The shareholder can readily get a loan against the electronic securities.

The process of dematerialization of shares

The dematerialisation process is quick and easy and takes place within a few weeks of placing the dematerialisation request.

  • Converting share certificates into an electronic form takes about two to four weeks.
  • An investor needs a Demat account to request the dematerialisation of the shares and securities he holds.
  • An investor selects a DP or stockbroker through whom they want to convert their shares into a dematerialised form
  • They need to complete the account opening process, which requires filling out a form and submitting relevant document proofs along with completing the KYC.
  • They can then submit their request for dematerialising the share certificates.

Conclusion

Dematerialisation of securities is essential for keeping the securities safe from unwanted nuisances like fraud and theft. It speeds up the transaction of shares between parties and reduces the costs involved.

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FAQs

Dematerialisation meaning is the conversion of physical share certificates into an electronic form.

Dematerialisation is the process of conversion of share certificates from physical to electronic form. The shareholder can open a Demat account and place a Request for Dematerialisation with the help of the DP to get his shares converted.

Conversion of the shares held by an investor from physical paper to electronic form is an example of dematerialisation.

The objectives of dematerialisation are to provide greater security to shareholders’ certificates, reduce the transaction cost of securities, and make securities transactions safe, quick, and easy for traders.