The present e-generation prefers maintaining everything online. You have online shopping, online schooling, online payment of receipts and bills, online transfer of money, etc. The whole world is going digital. This is the exact concept of converting your physical shares into their demat form. You can avoid the risk of losing share certificates or duplication when you convert physical copies of share certificates into their demat format.
The idea of dematerialisation is to change old and traditional ways of investing in the stock market to new and advanced methods. As everything is going digital now, why not your trading too? The dematerialisation of shares came into effect in 1991. It was enforced by the Securities and Exchange Board of India, or SEBI, in a bid to compel people to convert physical or paper share certificates into electronic formats. So, materialised certificates became dematerialised. “Demat” is the short form of “dematerialised” or “dematerialisation”. Opening a demat account makes the entire process of trading and transacting in share markets smooth and creates transparency. It also saves you from the potential loss and damage that paper certificates pose. By way of the 1996 Depositories Act, any investor may still hold shares in paper formats, but to trade those, demat accounts are compulsory. Moreover, if you hold stock in any unlisted company, your shares must be dematerialised. For all general purposes, it is best to convert physical shares into demat formats at the earliest. The process is easy.
You have to open a demat account with the Depository Participant, shortly abbreviated as a DP. The DP is usually a share broker who acts as an intermediary between you and the bank. As you are the beneficiary of the demat account, you will have to get the account opening form duly filled. You will have to fill in your bank account details clearly and legibly. Bank details include your bank account number, IFSC code, name of the bank and branch, Address of the branch, etc. Now you have clearly signed up a deal with the DP.
This is the second most important step in operating your demat account. You will have to convert your physical share certificates into electronic format. How do you think you would do that? The process here is quite simple. You will have to fill in a DRF form. DRF stands for Dematerialization Requisition Form. Once the applicant submits the DRF form, your share certificates will physically be verified by the concerned authorities. Upon verification, the DRF team converts all your physical share certificates into their electronic form. It takes approximately 2-3 weeks for the DRF team to convert all your physical shares into the demat form or electronic form.
Once all your physical share certificates are converted into their respective electronic form, the Depository Participant or the DP will provide you with periodic statements. These statements pertain to your holdings. The DP will also intimate you on the clients’ account status especially after you are done with a particular transaction. You can buy shares and sell them the very same day, during the market hours. The process of buying shares and selling them the very same day is also known as day trading or intraday trading. For you to be a successful intraday trader, you essentially need to have an operative demat account.
In order to be successful with day trading, you can sign up with a free online demat and trading account company. You can learn how to operate on a dummy platform before you start investing real-time money.
Receiving your original share certificate from the respective company is a very time-consuming process
Sometimes, you may receive your share certificates that are soiled or in a shabby condition.
It involves a delay in processing transactions when you operate shares in their physical format
Sometimes, you get two share certificates of the same denomination.
While with a demat account you can avoid:
Duplication or dislodgement of share certificates
The process of transferring shares from the DP into your account takes place in a matter of seconds. Hence, you can clearly avoid the time-lag involved in dealing with physical shares.
Furthermore, you hardly have agents or brokers who deal with physical shares. Most of them operate through demat accounts.
In a nutshell, this is the entire process of converting your physical shares into the demat form:
You can effortlessly convert your physical share certificates to demat formats with your bank (at the demat department) or at any good brokerage such as Motilal Oswal. The process is easy and can be done online as well. If you do this, you can use online channels to trade in the stock market and make transactions easy as your demat account is linked with a trading account and your bank account. You can learn the basics of trading by opening a free online and demat trading account. The demat account opening procedure has thoroughly been discussed in the article.