What is Dematerialisation of Shares - Meaning, Process & Advantages

Imagine having to hold onto paper certificates every time you buy shares. If one gets lost or damaged, it could lead to a lot of paperwork and delays. Dematerialisation has made things much simpler.

Dematerialisation of shares means converting physical share certificates into electronic records that are stored in a Demat account. Once your shares are converted, you no longer need to handle paper certificates. You can manage, transfer, and trade your shares with a few clicks, electronically.

How does dematerialisation actually work? Why is it so helpful for investors? Let’s take a look at what dematerialisation means, how the process works, and the key benefits it brings to investors.

What is the Dematerialisation of Shares?

Dematerialisation of shares refers to the process of converting physical share certificates into electronic records stored in a Demat account.

For example, if you own 100 shares of a company in paper form, once they are dematerialised, they are credited to your Demat account. After this process, the physical certificates are no longer used for holding or trading those securities.

This process was introduced to solve issues related to physical security. These include risks such as loss, theft, forgery, damage, and paperwork-related delays.

How Does Dematerialisation Work?

Dematerialising physical shares involves a few simple steps:

Open a Demat account

You need an active Demat account with a Depository Participant (DP). It acts as the link between you, the depository, and the company or its Registrar and Transfer Agent (RTA).

Obtain the Demat Request Form (DRF)

Get a DRF from your DP. Fill in details such as your Demat account, the company name, the ISIN, certificate details, the securities you wish to dematerialise, and how you want to do that.

Submit the DRF and Physical Certificates

Submit the signed DRF together with the physical share certificates to your DP. Usually, you need DRFs for securities that have different ISINs and also for securities subject to different lock-in conditions, where applicable.

DP Verifies the Documents

The DP checks the DRF and the certificates. After that, the DP creates the dematerialisation request and sends it electronically to the company or its RTA.

Company/RTA Verifies the Request

The issuer or RTA checks the request and the physical certificates. If the details match, it confirms the request.

Shares Credited to Your Demat Account

When the request is confirmed, the depository updates its records and credits the securities to your Demat account.

As per CDSL’s operating instructions, the issuer/RTA should generally process the request within 15 days of receiving the physical documents, but the request has to be complete and valid.

Benefits of Dematerialisation of Shares

Dematerialisation has made investing and managing securities much simpler. Here are some of its key advantages:

• Reduces the risk of physical loss: Physical certificates can be lost, stolen, or damaged. With dematerialised securities, your holdings are kept electronically, which cuts these risks.
• Makes buying and selling easier: You do not need to handle certificates each time you wish to sell your shares. Securities stored in your Demat account can be traded electronically through your trading account.
• Less paperwork: Dematerialisation reduces the need to keep and manage certificates and their paperwork. You can view your holdings and transactions electronically.
• Easier portfolio tracking: A Demat account gives you a view of all your securities. This helps you monitor your investments and keep track of your holdings easily.

FAQs

What is dematerialisation of shares?

Dematerialisation is the process of converting physical share certificates into electronic securities held in a Demat account.

Is dematerialisation of shares compulsory?

Investors have historically had the option to hold eligible securities in physical or electronic form. However, securities traded and settled in the stock market are generally required to be in dematerialised form under applicable regulations.

How can I dematerialise physical shares?

You need to submit a completed Demat Request Form (DRF) and the relevant physical share certificates to your Depository Participant. The DP forwards the request to the issuer/RTA for verification. Once approved, the shares are credited to your Demat account.

How long does dematerialisation take?

The issuer/RTA should generally process the dematerialisation request within 15 days of receiving the physical documents, subject to the request being complete and valid.

Is there a separate DRF for each company?

A separate DRF is generally required for each ISIN. Additional forms may be required for securities with different lock-in conditions.

Can all physical shares be dematerialised?

Only securities that are eligible and admitted to the relevant depository can be dematerialised. The DP can help you check whether the securities are eligible for dematerialisation.