What is Dematerialisation?

As an investor, holding physical security certificates of investments poses various risks, like theft, loss, damage, forgery, etc. Through dematerialisation, you can convert physical security certificates and other documents into a digital or dematerialised format for safety and convenience. Depositories like the NSDL and CDSL play a crucial role in keeping securities in a digital format.

Go through this blog to explore the dematerialisation meaning, significance, and importance for investors.

Understanding the Meaning of Dematerialisation

The need for dematerialisation arose due to the drawbacks of holding physical security certificates. It refers to converting physical shares into electronic form for security purposes and easier trading. Physical securities are inefficient, leading to delayed transactions, manual errors, and poor handling processes.

With the dematerialisation of shares and other physical security certificates, investors can convert their holdings into digital formats. These securities are stored in a central depository, enabling seamless and secure investment experiences.

Importance of Dematerialisation

Since the Depositories Act of 1996, it has become essential to dematerialise securities, especially for trading shares. This process keeps securities safe and allows investors to access them anytime from anywhere.

Unlike earlier times, investors no longer maintain certificates physically. With a computer or smartphone, you can track, buy, and sell securities digitally. Dematerialisation has also reduced holding charges and eliminated stamp duty.

Process Flow of Dematerialisation of Securities

Now that you know what dematerialisation is, here’s how the process works:

1. Create a Demat Account

To convert your physical securities, start by creating a Demat account and submitting a request to convert your physical share certificates.

2. Pick a Depository Participant

Choose a Depository Participant (DP) such as a stockbroker, financial institution, or bank that is registered with NSDL or CDSL.

3. KYC Verification

Complete KYC by filling out a Dematerialisation Request Form (DRF) and providing the required documents to your chosen DP.

4. Form Submission

Submit the completed form to your DP. They will forward the dematerialisation request and certificates to the Registrar and Transfer Agents (RTA) and respective companies.

5. Confirmation

Once verified, your physical certificates are immobilised, and the securities appear digitally in your Demat account.

Benefits of Dematerialisation of Shares and Securities

1. Easy Management

Managing dematerialised securities is easier than handling physical ones. Investors can access all holdings in one place via their Demat account.

2. Enhanced Security

Physical share certificates are vulnerable to theft or forgery. Digital securities are stored securely in central depositories, reducing risk.

3. Faster Transactions

Dematerialisation enables quicker buying, selling, and transferring of securities with minimal delays.

4. Enhanced Liquidity

This process simplifies share transfers and improves market liquidity, promoting efficient trading environments.

Disadvantages of Dematerialisation

1. Cybersecurity Risks

While eliminating paper-based risks, digital trading comes with the threat of cyberattacks like hacking and data breaches.

2. Technology Barriers

Older investors or those with outdated devices may find it difficult to navigate online trading platforms.

3. Access Issues

People in remote or underdeveloped regions might face issues due to poor internet connectivity and lack of access to suitable devices.

4. Conclusion

Dematerialisation has transformed the investment landscape by digitising securities. To hold and trade shares, you must open a Demat account with a DP. The process is simple and can be done online, ensuring safe and efficient management of your assets.

FAQs

1. How long does it take to dematerialise shares?

It typically takes two to four weeks to complete the dematerialisation process after submitting a request through your DP.

2. Can I close one Demat account and transfer all my securities to another DP?

Yes, you can close a Demat account and transfer your holdings to a new one using a Delivery Instruction Slip (DIS) or via the NSDL/CDSL website.

3. Can physical shares be traded after dematerialisation?

No, once shares are dematerialised, they can only be traded digitally through your Demat account.

4. Is there a fee for dematerialisation?

The charges vary depending on the DP, typically between INR 100 to INR 400. Contact your DP for exact fees.