Dematerialisation Meaning - Advantages of Dematerialisation of Shares | Motilal Oswal
Dematerialisation Meaning - Advantages of Dematerialisation of Shares | Motilal Oswal

Benefits And Advantages of Dematerialisation of Shares

Dematerialisation is the process wherein physical shares are converted into an electronic format. If you are looking to open broking account online, it helps to understand the process of dematerialisation of shares and how it helps traders and investors.

An investor may opt for dematerialisation or rematerialisation of shares based on their convenience. Rematerialisation is the opposite of dematerialisation where shares are held in a physical form. What exactly is the dematerialisation of shares meaning? When you have a demat account, it means that you can hold shares and securities in the digital format; a trading account will help you sell and buy shares. Typically, you can open a demat and trading account together.

What are the benefits of dematerialisation?

One of the biggest advantages of dematerialisation is that it functions as a bank account that holds your money; a demat account holds your shares in a secure manner. This means there is no danger of theft or fraud or even damage of shares when you hold it in a physical format.

One of the other benefits of dematerialisation is that it is a paperless process and is highly convenient.

If you are an investor or trader, you can link  your bank account to the demat account so that you can effortlessly transfer or transact in stocks in quick time. Considering that the markets are constantly fluctuating, the ability to quickly carry out transactions is a boon. Also settlement of trades has become faster thanks to dematerialisation of shares. The settlement cycle has been reduced to two working days.

In the rematerialised format or physical holding of shares, the possibility of errors was higher because of manual work involved. One of the biggest advantages of dematerialisation is that errors are minimal or nil.

In the unfortunate scenario of a demat account holder’s death, the transfer to next of kin is a seamless process unlike in the case of physical shares. This is advantageous to both the brokers and investors, as they can save time.

The other advantage of dematerialised accounts is that they can hold a variety of securities. You can use the same account to hold your mutual funds, gold exchange-traded funds (ETFs), apart from stocks.

If you need to pledge your securities, the dematerialised account helps you do so. Typically, banks prefer lending against shares that have undergone dematerialisation rather than physical  share certificates. The terms are also better when you hold electronic shares.

If an investor loses a statement of holdings, all they need to do is contact the depository participant and get a duplicate effortlessly. In a non-dematerialised format, there is no depository participant involved.

In terms of the financial system, in an increasingly electronic and digital world, handling physical documents may hamper the functioning of the stock trading and broking world. The move to dematerialisation is in line with the general move of all systems to go online and transact via smart devices. This is a huge relief for those looking to open broking account online.

Who are what is a depository and a DP?

The depository is responsible for holding securities in the electronic format and making them available to the shareholder at their request. The depository participant or DP is the depository’s agent and provides services to investors or traders. They are like the intermediary contact for both depositories and investors. The depositories registered with SEB include National Securities Depository Limited (NSDL) and Central Depository Services Ltd (CDSL).

Conclusion

Dematerialisation of shares ensures quick, error-free and seamless transactions, apart from ensuring there is no physical damage or theft of your shares. It is a safe and convenient way to trade or invest in securities.

Related Articles: Understand what are the Tax Implications on buyback of shares? | How to buy and sell shares online in India | All You Need To Know About Dematerialization Of Shares | How To Transfer Shares From One Demat Account To Other? | How to convert your physical shares into demat form

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