Dematerialization of shares

What is the Dematerialization of shares ?

Dematerialization (DEMAT) refers to the transfer from physical certificates to electronic bookkeeping. In simpler terms, it is the process of converting physical shares and securities into digital or electronic form. Instead of holding paper certificates, all your securities are stored electronically.

Why is Dematerialization Needed ?

There are a lot of reasons why Dematerialization is needed, Few of them are -  

1. Convenience : With only a single click, shares may be effortlessly transferred between individuals.

2. Digital Presence : Participants can access securities through digital presence even in the absence of physical documentation.

3. Reduced Fear of Damage and Loss : Dematerialization eliminates the risk of loss, damage, or theft associated with physical certificates.

4. Cost Efficiency: It reduces costs related to printing, handling, and storing physical certificates.

5. Corporate Benefits : Improved shareholder communication is made possible by dematerialization.

6. Environment friendly : the increasing printing of securities day by day results in more and more paper waste, which negatively impacts our environment.

What is The history behind dematerialization in India ?

Post-NEP (New Economic Policy, 1991): The foundation for dematerialization was laid after the New Economic Policy was introduced, bringing globalisation, privatisation, and liberalisation. The Depositories Act of 1996 required the dematerialization of securities in India, and the Securities and Exchange Board of India (SEBI) was instrumental in putting this requirement into practice.

Share certificates were formerly tangible papers that were exchanged on the stock market prior to dematerialization. This method of trading was burdened with paperwork, delays, and disputes, and also witnessed numerous conflicts and fraudulent activities.

The Introduction of Dematerialization : Dematerialization was introduced as a solution to these problems. As was previously said in the necessity for a demat section, it has been beneficial in many ways. The trading procedure became more efficient and error-free as a result of dematerialization.

On April 1, 2019 SEBI has updated the Listing Obligations and Disclosure Requirements Regulations, 2015, which prohibit listed companies from processing transfers of securities in physical form. Shareholders must convert their physical securities into dematerialized form to enable transfers. However, requests for transmission and transposition of physical securities will still be processed

How to open a DEMAT Account ?

To open a DEMAT account, the following documents are required to be submitted to the broker for the KYC process. 

1. Application form that is duly filled.

2. Proof of address (Aadhar,  DL, Voter ID).

3. PAN card.

4. Bank account for Funds transfer.

Once all the documents are verified and authenticated, your DEMAT account will be successfully opened, and a unique DEMAT ID will be generated.

Process of physical to dematerialization?

The process of physical dematerialization, commonly referred to as dematerialization, involves converting physical share certificates into electronic records. Here’s how it typically works - 

1. Creating a Demat Account : Creating a Demat account is the first step. You can easily do this with the assistance of brokers such as Zerodha or ICICI Direct. 
2. Submitting the Dematerialization Request Form (DRF) : Next, you need to fill out the Dematerialization Request Form (DRF). Send this form to the Depository Participant (DP) along with your actual share certificates.
3. Verification and Conversion : For verification, the DP forwards the DRF and your actual share certificates to the company's registrar. The transfer of your shares from physical to digital form is confirmed when the company's registrar provides the all-clear.
4. Crediting Shares to Your Demat Account : In the final stage, your shares are credited to your Demat account. You can quickly trade and online manage your securities after receiving this credit.
   

A DEMAT account functions substantially in the same way as a bank account. A DEMAT account acts as a platform to keep different securities electronically, removing worries about loss or damage, whereas a bank account holds cash.

Frequently Asked Questions :

Q) Can I Open Multiple DEMAT Accounts ?

A) Yes, you can open multiple DEMAT accounts with different brokers using the same PAN number. However, you cannot open more than one account within the same brokerage firm.

Q) Can I Link Multiple Trading Accounts to a Single DEMAT Account ?

A) Yes, you can link multiple trading accounts to a single DEMAT account for seamless management of your investments and research.