The Indian share market has emerged as one of the most popular avenues for investors willing to employ their funds in short-term or long-term solutions. Previously, firms issued share certificates in paper format. While paper certificates were easy to give and hold, they had a risk element for the shareholder.
Certificate forgeries, loss of documents, and lags in certificate transfer were common problems that shareholders faced with physical share certificates. Considering these risks, financial regulators introduced the concept of Dematerialization.
Dematerialization converts your paper-based share certificates into an electronic format. Here’s everything you need to know about what is dematerialisation of shares, its benefits, and how it works in India.
Dematerialization of shares is the conversion of paper-based share certificates into electronic certificates. After dematerialization, e-certificates replace the original share certificates for trading purposes within the stock market. You must open a Demat account with a registered depository to hold these electronic shares and exchange them safely when trading in future.
The Securities and Exchange Board of India (SEBI) has made it mandatory for companies to issue shares only in the dematerialized format. Currently, a lack of dematerialization of shares will refrain you from selling or transferring your shares to another shareholder’s account. With electronic bookkeeping, DEMAT accounts ensure high-end security, ease of operation, and convenient transferability for shareholders and firms.
In India, a regulated depository holds shareholders’ securities digitally. Presently, two depositories are duly registered with the Securities and Exchange Board of India (SEBI) to perform the duties expected of a depository. These two licensed depositories are the National Securities Depository Ltd. (NSDL) and Central Depository Services (India) Ltd. (CDSL).
Dematerialization of shares adopts a systematic process to convert paper-based share securities into electronic certificates. The process eliminates the dependence on brokers and other financial intermediaries for security trading, eventually giving complete control to the shareholder.
Also, dematerialization removes the pressure of additional expenses on you. It streamlines the trading process by offering a safe platform for global stock investors to invest, interact, and earn. In simple terms, dematerialization works to simplify trading by using technology.
● Ease in management
You can manage and trade your shares with electronic certificates at your convenience. Dematerialization saves time, money, and effort by eliminating the need for physical presence. You only need a smartphone, laptop, or computer to move your shares in and out of your Demat account without any potential risk or hassle. Moreover, dematerialization makes you the legal owner of the shares you hold.
● Economical, time-saving, and environment-friendly
Dematerialization helps you avoid extra expenses which can otherwise burden your pocket. It saves stamp duty charges as they do not apply to e-securities. Also, the holding charges for shares in Demat accounts are nominal. With dematerialization, you can buy securities in any number based on your income level. Moreover, dematerialization eliminates paperwork which eventually avoids the wastage of paper.
● Safe trading
Dematerialization gives an electronic form to all your physical securities. This conversion eliminates the risk element from share trading to a large extent. You can safely purchase, sell, or trade your securities at your will without worrying about theft, forgery, or identity impersonation.
● Quick loans
You can easily use your assets, like bonds and debentures, as collateral to secure a low-interest loan. Dematerialization increases the liquidity of your securities by easing their trading across multiple platforms with ease.
● Other benefits
● Relief from dealing with brokers who can burden you with their exorbitant fees
● No delay in share transfers or share trading
● Increased trading opportunities that fit your budget and preference
● Owners can freeze or unfreeze their Demat accounts based on their needs
The process of dematerialization comprises a few simple steps.
1. As mentioned above, converting physical share certificates into electronically operable certificates starts with opening a Demat account. You must choose a trusted Depository Participant (DP) that provides dematerialization services.
2. The DP requests you fill out a Dematerialization Request Form (DRF) before proceeding with your application. You must submit the DRF along with physical share certificates. Also, you must mention the words ‘Surrendered for dematerialization’ on each share certificate you submit with the DP.
3. The DP then forwards your request and the share certificates to the company. Next, they move to the registrars and transfer agents via the depository for processing.
4. The physical share certificates become inoperable after the successful approval of the dematerialization request. The confirmation of dematerialization is sent to the depository.
5. At last, the depository confirms the share certificate conversion into electronic certificates to the DP. You will then see a credit in the shareholding in your Demat account.
Notedly, the entire process of dematerialization takes around 15 to 30 days from the submission of the request with the DP.
● Ease in share trading by dematerialization has increased liquidity but has rendered markets with high volatility.
● Managing electronically-controlled Demat accounts can be difficult for people with little to no knowledge of smart gadgets.
Share markets are one of the safest zones for investing in short-term or long-term securities. They offer high-end security to investors alongside good returns. Dematerialization of securities adds an extra layer of safety in share trading. With the e-conversion of share certificates, you not only legalize your company ownership but also streamline the purchase and sale of securities. Moreover, dematerialization is a simple process and requires minimum paperwork.
Avoid carrying physical share certificates and replace them with e-certificates for enhanced trading experience and usage.
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing. For detailed disclaimer please Click here.
Before investing in securities, consider your investment objective, level of experience and risk appetite carefully. Kindly note that, this article does not constitute an offer or solicitation for the purchase or sale of any financial instrument.
These articles have been prepared by 5paisa and is not for any type of circulation. Any reproduction, review, retransmission, or any other use is prohibited. 5paisa shall not be responsible for any unauthorized circulation, reproduction or distribution of this material or contents thereof to any unintended recipient. Kindly note that this page of blog/articles does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. This article is prepared for assistance only and is not intended to be and must not alone be taken as the basis of an investment decision. The value of the investments may be affected generally by factors affecting financial markets, such as price and volume, volatility in interest rates, currency exchange rates, changes in regulatory and administrative policies of the Government or any other appropriate authority (including tax laws), or other political and economic developments. Please note that past performance of financial products and instruments does not necessarily indicate the prospects and performance thereof. The investors are not being offered any guaranteed or assured returns.
The securities quoted in the article are exemplary and are not recommendatory. The investors should make such investigations as it deems necessary to arrive at an independent evaluation of use of the trading platforms mentioned herein. The trading avenues discussed, or views expressed may not be suitable for all investors. 5paisa will not be responsible for the investment decisions taken by the clients.
Open Free Demat Account
Be a part of 5paisa community - The first listed discount broker of India.
