What is Dematerialisation of Shares?

The capital market has witnessed a gradual rise in investors, with the youth diving into trading and investing. With the advent of digitalisation, investing in securities has never been easier. The most important aspect of this movement has been Dematerialisation. It is a process by which individuals can convert their physical shares and securities to a digital format. A Demat Account stores these digital securities.

How does the Dematerialisation of Shares work?

Securities can be in the form of Mutual Fund units, government securities or stocks of a company. A registered Depository Participant (DP) holds the security. A DP is an agent of the registered Depository. This agent provides depository services to investors and traders.

Two depository bodies are registered with the Securities and Exchange Board of India (SEBI) for Dematerialisation.

  • CDSL (Central Depository Services Ltd)
  • NSDL (National Securities Depository Ltd.)

Read more about depository participant and its role here.

What is the Process of Dematerialisation?

The process of Dematerialisation is straightforward for the investor. Follow the steps below for the Dematerialisation of shares and securities:

  • Open a Demat Account with a Depository participant (DP) that offers.
  • Then, convert physical shares into Demat shares. To do so, you must submit a Demat Request Form (DRF) provided by the Depository Participant. You need to submit the form with the relevant share certificates to the Depository Participant.
  • The Depository Participant reviews and processes the request along with the share certificates. The DP also sends the share certificate to the company, registrar, and transfer agent.
  • Once the request is approved, the DP destroys the physical form of the share certificates. After that, the Depository will receive the confirmation of the Dematerialisation.
  • After the Depository confirms the Dematerialisation of your shares, they will credit the shares to your Demat Account. You can check the status of the shares online.
  • This process takes 15 to 30 days to complete.

How does a Demat Account work?

It is essential to know that a Demat Account only holds your securities. To trade securities, you will also need a trading account linked with your Demat account. Follow the steps given below to buy securities using your Demat Account:

  • Choose the broker or platform that facilitates the trading of securities.
  • When you buy a security on the platform, the Depository Participant forwards your request to the stock exchange.
  • The stock exchange then matches your buy request with a sell request in the market. The exchange then sends an order to the clearance house.
  • The clearance house then settles the trade by debiting the given number of shares from the Demat Account of the seller and credits it to your Demat Account by the end of the trading day.

What are the Benefits of Dematerialisation?

Dematerialisation comes with multiple benefits that make trading convenient for you. Some of the benefits are as listed below:

  • You have the convenience of managing your shares and transactions from any location.
  • Risks that come with owning physical shares like theft, forgery and damage are not present with Dematerialisation.
  • There are no stamp duty charges for the electronic transfer of securities.
  • Dematerialisation eliminates excess paperwork.
  • It increases the share trading volume and facilitates more participation.
  • Dematerialisation increases the transparency of the security trading process.

To learn more about applying for a Demat Account at HDFC Bank, click here.

*Terms and Conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action.