What is Dematerialization of shares?

The process of Dematerialization of shares was introduced to convert the whole Capital Market into electronic mode. Dematerialization, in simple terms, is a process of converting physical shares into electronic mode which is maintained in an account with the Depository Participant. The Account in which the shares are maintained is termed as the Demat Account.

For the purpose of converting physical shares into electronic mode, the Depositories work as the Organizations responsible for maintaining securities in electronic mode. For this reason, the Depositories are also termed as Banks.

Currently, there are two depositories registered with SEBI namely National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL).

The intermediaries through which Depository Services can be availed by investors are termed as Depository Participants.

Why Demat over Physical?
Dematerialization offers flexibility along with security and convenience. Dealing in Demat shares is beneficial to stakeholders, be it investors, brokers or Companies, in various ways.

Following is a brief list of advantages available to Demat shares for which the same is preferred over physical shares by investors:

• It is cost friendly to the investors as it does not involve any documentation.
• Efficiency and timeliness of the process is also maintained while dealing in Demat format.
• Investors save stamp duty while transferring shares in Demat Format.
• There is no risk of duplication of shares and loss of important certificates.

How to Demat your Physical Shares?
Let us learn about the procedure through which physical shares can be converted into Demat Shares:

1. An investor intending to dematerialise its securities needs to open a demat account with a Depository Participant (DP) by duly filling the Account Opening Form and furnishing relevant details.
2. Once the Account is successfully opened, the next step is to apply for Demat of Shares by filling the Dematerialization Requisition Form (DRF).
3. The DRF form should be duly filled in with number of certificates, no. and type of securities.
4. The DRF form has to be furnished to the concerned Authorities along with the Original Physical Share Certificates of the Company.
5. Once the Physical Certificates are verified by the concerned Authorities, they are converted into their respective electronic forms.
6. After the Demat of shares, the DP will submit all the Certificates to the concerned Registrar and Transfer Agent.
7. Once the Registrar confirms the Dematerialization request, it dematerializes all the certificates, destroys the physical certificates and updates the same in its records.
8. Once the confirmation of Dematerialization is sent to the Depository, the same in updated to the DP.
9. The DP in turn updates the account of the investor, and a credit in holding of shares is reflected in the investor’s account electronically.

Nikita Bhatia is the co-founder of VenturEasy, an online platform for Company registration, book-keeping, accounting, tax consultancy and legal compliances in India. A Chartered Accountant and company secretary by profession, she has wide experience in the fields of audit, accountancy, taxation and corporate governance.