The year 1996 shook up the Indian stock market with the introduction of the Demat Account by the Securities and Exchange Board of India (SEBI). The catch was that investors no longer needed to visit stock exchanges in person to sell or purchase stocks.
Today, investors can theoretically hold their savings in a Demat account and trade securities online. However, with this current form of trading, what happens to the physical share certificates held by investors for shares purchased before 1996?
This is where the dematerialisation process comes in. Buyers can now turn their physical shares into virtual ones via a Demat account. That said, this blog lists the basics of what dematerialisation is, and walks you through the steps of the complete dematerialisation process.
What is Dematerialisation?
As stated above, people owned physical share certificates before digital trading. SEBI, on the other hand, says that physical share certificates must be turned into virtual shares through a process called “dematerialisation.”
In easier terms, getting your physical shares converted into electronic ones is known as “dematerialisation.” There are four main players in this entire process. This includes the depository, the issuer, the beneficial owner, and the depository participant (DP).
India has two major depositories, namely, National Securities Depository Limited and Central Securities Depository Limited. The firm that floats the shares is known as the issuer, and the entity that serves as a middleman between the depository and the investor and is registered with SEBI is known as the depository participant. Depository agents are the only ones via whom investors can get depository services.
Dematerialisation is somewhat similar to storing cash in a bank account. In Demat form, electronic book entries take the place of your physical share certificates; share purchases appear as credits and sales as debits in your Demat account.
The Complete Dematerialisation Process
The share dematerialisation procedure is quite easy to understand. It only takes a few days to finish. Here’s how:
- To begin with, you will have to open a Demat account with a depository through a DP. In most cases, the stockbroker you have a trading account with also serves as a DP.
- After opening your account and having a demat account no., you need to send your DP a fully completed Dematerialisation Request Form (DRF). Along with this, make sure you submit the physical share certificates that you have.
- In case you hold shares in more than one company, you will need to send in a complete DRF and the relevant share certificates for each firm.
- After submitting successfully, your DP will review the form and the securities carefully after receiving the DRF. This process might take a little time. It is to make sure everything is accurate and relevant.
- Once the DP is pleased with your request, you will receive an acknowledgement. This will be in the form of a DRN (Dematerialisation Request Number).
- Next, the DP will subsequently send your request to the company’s Registrar and Transfer Agent (RTA).
- After this, the RTA will take its own time to process your request. Upon holding the necessary considerations, the RTA approves your request for dematerialisation. Here, the physical share certificates get converted to an electronic format.
- With this, the process comes to an end. Your Demat account finally gets credited with the dematerialized shares. You can either transfer this to the other accounts or sell them straight.
Conclusion
Generally, the dematerialisation process helps for security purposes too. If you look into it closely, you can see several risks associated with physical share certificates. To name a few, this includes certificate forgeries, significant delays in certificate transfers, and loss of crucial share certificates. However, with dematerialisation, you can easily get rid of these inconveniences stated above.