Dematerialisation is a process in which your physical share certificates are converted into an electronic form. The basic motive of dematerialisation is to make the process of buying, selling, holding, and transferring shares smoothly and also to make it cost-effective. Dematerialisation was needed in 1996 as sometimes it became very typical to handle physical share certificates and other paper documents related to shares. It also becomes very hectic to manage a large number of papers. Before dematerialisation, investors were required to pay charges such as stamp duty, handling charges, etc. Dematerialisation eliminated these costs as there is no physical existence of shares, so there is neither stamping of shares nor physical holding of shares.
Dematerialisation was becoming a necessity to be implemented in 1996. The biggest reasons were the scams that were prevailing in the stock market. E.g., non-issuance of Bank Receipts (BR). Possession of physical shares but non-payment of the amount at the time of delivery, etc. are the few scams that were going on in the stock market. Apart from the scams and frauds, there were also the basic problems that every investor was facing every day in stock market trading, such as a physical appearance at BSE every day, excessive paperwork, costly process, standing in long queues to get share certificates, etc. While keeping all these problems in mind, India introduced dematerialisation which implies having a DEMAT & trading account was made mandatory for every investor.
In India, two depositories have the right to maintain all the DEMAT Accounts, i.e., National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL).
Process of Dematerialisation:-
Step 1: – Open a DEMAT A/C:-
The process of dematerialisation starts with Opening a DEMAT Account. To open a DEMAT Account, you need to approach a Depository Participant (DP). You can check out the list of DPs on NDSL’s or CDSL’s websites and choose the best DP to approach. You can get your DEMAT Account opened while sitting at home.
Step 2: – Generate Dematerialisation Request:-
After opening a DEMAT Account, you need to generate a dematerialisation request to convert your physical shares into electronic form. To do so, you are required to submit a Dematerialisation Request Form (DRF) which is available with the DP. Fill out the form and submit it to your DP along with the physical securities you are holding. You must mention each share certificate or other securities as” Surrendered for Dematerialisation”.
Step 3: – Request Processing:-
Once your application is approved by the DP. The DP will process your request along with share certificates submitted to you and simultaneously to the registrar & transfer agents through DP.
Once your application is completed and approved successfully, physical certificates submitted by you to the DP will be destroyed and confirmation status of dematerialization of shares will be sent to your DP.
Your DP will confirm the completion of dematerialisation of shares and once it is done, your shares will be credited to your DEMAT account and they can be seen electronically over the internet connection.
Benefits of Dematerialisation:
Safe and Secure:
Before 1996, doing transactions in the stock market was not at all safe. The risk of theft, loss, or manipulation of share certificates was always there when physical share certificates were issued to investors. But since dematerialisation has been done, doing transactions in the stock market is safe and secure as there is no risk of theft, loss, or manipulation of shares.
Since DEMAT Accounts holds all the shares and other financial securities in electronic form, it eliminates the need of using paper as no physical share certificates are issued to the investors which were issued to the investors before 1996.
Ease in Receiving Corporate Benefits:
Corporate benefits refer to the amount that gets directly credited into the DEMAT Account. Refunds, interest, dividends, etc. are a few examples of corporate benefits one will receive in his/her DEMAT Account.
With the help of the holding of securities in the DEMAT Account, you can get a loan against your holdings as the DEMAT Account holdings act as collateral against the loan. No bank can refuse you to give a loan against the securities held in your Demat Account but the amount of the loan may depend on the number of security holdings you have in your DEMAT Account.
Dealing in the stock market has now become much simpler as compared to 1996 as you’re not required to go anywhere and everything can be done by just a tap on the smartphone or a mouse click on a PC. Dematerialisation has surely proved to be a savior for the whole country because dematerialisation has helped the whole country in getting rid of all the hassles and problems in the stock market trading and even using the DEMAT Account is cost-effective. Investors or traders only have to pay an Annual Maintenance Charge (AMC). As the name denotes, this is a charge which you will be charged by your DP yearly.