Ever since the introduction of Demat accounts and electronic share trading in India, the possession of physical share certificates has been declining steadily. In fact, the Securities and Exchange Board of India (SEBI) has mandated that companies issue shares only in the dematerialized form and not as physical share certificates. You're now probably wondering, ‘what is dematerialization?’, aren’t you? This is an important concept to know about, especially if you want to trade in the lucrative stock market today effectively. As all functions of trading and holding securities go online with proficient portals and apps, you should be savvy about concepts, so you know how to use the trading and investment world to your full advantage. All investors trade and invest with the aim of profit-making, so it is best to keep yourself aware of all elements concerning trading and investing in equity. Keep reading to know everything about the concept of share dematerialization.
The process by which the physical share certificates of a company are converted to an electronic form is what is commonly known as the dematerialization of shares. These dematerialized shares are then held in an online Demat account that you open with a depository. In the current context of stock trading, share dematerialization is mandatory in order to be able to sell or transfer your shares to another account.
Previously, shares were held in physical formats, proving a challenge to maintain over time. Paper gets frayed, and since the world has gone online in most aspects of life, why not the investment arena and share markets too? Dematerialization has made investing easy, and you can easily open a Demat account with a bank or a good brokerage. Moreover, as all accounts are electronic, Demat accounts are linked to bank accounts and trading accounts to make trading transactions (the purchase and sale of shares) smooth and seamless. Since investing in stocks is done mainly when lucrative opportunities present themselves, Demat accounts serve the purpose of quick actions with joint trading accounts and bank accounts.
Now that you know the answer to the question ‘what is dematerialization?,’ let's take a quick look at some of the benefits of share dematerialization.
Since dematerialization entails the conversion of physical shares into electronic ones, you don’t have to worry about damage, mutilation, loss, or theft of your share certificates. You get to safely store all your shares in one single Demat account that can be accessed from almost anywhere in the world.
When physical share certificates were still in use, there were many instances of forgery, fraud, and duplication. However, with dematerialized shares, none of these incidents is possible.
With physical share certificates, transferring shares from one person to another would typically take days on end. But thanks to share dematerialization, share transfer is now exceptionally easy and almost instant.
The whole process of opening Demat accounts for shareholding has made the lives of investors and traders alike very simple and convenient. From holding shares securely in one place and getting a consolidated statement of all the securities you hold to online trading made convenient through Demat accounts, investing is simple. Today, everyone from college students to senior citizens is into share investing through a straightforward Demat account linked with a trading account. You can operate both these online and from anywhere, even if you are on a holiday. With the ease of trading with a Demat account comes huge opportunities to make the most of price changes in the stock market and, subsequently, good returns.
- The share dematerialization process is quite simple and easy to understand. Also, it takes just a few days to complete. Here’s a brief explanation about the process of dematerialization of shares.
- First, you’re required to open a Demat account with a depository via a depository participant (DP). Generally, the stockbroker with whom you have a trading account also doubles as a DP.
- Once you’ve opened a Demat account, you’ll have to submit a duly-filled Dematerialization Request Form (DRF) to your DP, along with the physical share certificates that you own.
- If you own shares of multiple companies, then you’ll have to submit a duly-filled DRF for each company along with the relevant share certificates.
- Upon receiving the DRF, your DP will scrutinize both the form as well as the securities to ensure that everything is in order.
- Once the DP is satisfied with your request, you will receive a Dematerialization Request Number (DRN) as an acknowledgment.
- The DP then forwards your request to the Registrar and Share Transfer Agent (RTA) of the company.
- Once the RTA of the company accepts your dematerialization request, the physical share certificates are converted to the electronic mode and are subsequently destroyed.
- And finally, the now dematerialized shares are credited to your Demat account, which you can subsequently either sell or transfer to other accounts.
As you can see from the above explanation, sharing dematerialization is uncomplicated and requires only a few minutes of your time. Dematerialization of shares has simplified the entire process of share trading, which was previously quite cumbersome. It has ushered in a new era of electronic share trading and has contributed immensely towards the growth and popularity of share trading amongst the public.