In the era where technology is advancing, every industry has taken a digital turn. And as Natrajan Chandrasekaran has rightly quoted, “Going digital is no longer an option, but it is the default”. When the entire world went digital, the share market also took a turn, and therefore, the concept of dematerialisation came to existence.
But what is dematerialisation, and why was it introduced in the share market? Let us answer all the queries in this article.
In earlier times, the shares were kept and traded in a physical format. Therefore, all the trading happened in the same format. This made it quite difficult for the traders to carry out the simple task of buying and selling shares.
So, in 1996 the share market took a digital turn and introduced demat account. So dematerialisation is converting the physical shares into a digital format. These shares eventually get stored in your demat account, enabling you to ease the process of trading.
Dematerialisation was needed because handling and storing shares was getting a little tedious. The people were expected to hold their shares and keep them safe. In case of any losses or theft, the losses had to be borne by the trader.
It was also challenging for the regulatory bodies to keep a check on all the physical shares and its activities.
Let us now look at the dematerialisation of shares.
The whole idea behind the share market is to buy and sell shares and consequently profit from them. The dematerialization of shares means turning all the physical shares into a digital format. All these shares are further stored in a demat account.
You can efficiently complete the demat account opening by choosing a stockbroker. Choice gives you the opportunity to open a demat account in simple steps, and the demat account gets activated within four hours of document verification.
The depository participants responsible for opening your demat account are managed by the two depositories in India: CDSL and NSDL. In turn, these depositories are responsible for maintaining for demat account.
So the dematerialisation of shares now helps in the easy holding in your respective demat account. Not only this, but you also get to track your records easily in your demat account.
Consider this as online banking, wherein you are not sending our actual cash, but the transfers are still happening anyways. You just transfer and trade the shares in a digital form from one demat to another.
When you are dematerializing your shares, you should remember that the shares should be in your name. If the shares are not under your name, you cannot dematerialize them and keep it in your demat account.
One should keep in mind various other factors when you are dematerializing your shares.
- Names on all the securities that are getting dematerialised should be the same as the demat account.
- Suppose there are changes in the initials, spellings, or anything else of the names. In that case, the client can dematerialise the shares if the signatures match in both the securities and the demat account.
- Only the securities that are allowed to be dematerialized by the NSDL can be processed.
Now that we have looked at the concept of dematerialization and why it is important, let us now have a look at the process of dematerialization.
Over the years, dematerialisation of shares has helped the investors keep their shares safe and the regulatory bodies have control over the stock market activities.
If you have some physical shares, you have to mandatorily get them dematerialized to trade them in the Indian stock market. You can complete the process in the given steps.
- The first thing that you need to do to dematerialize your shares is to open a demat account with the stockbroker of your choice. Now there are various demat account types and you can choose one according to your preferences and needs.
- You then have to contact your depository participant and ask for the Dematerialisation Request Form. You need to fill out the form to convert your physical shares into a digital format.
- Submit the duly filled dematerialization request form along with the shares certificate. Remember to mention ‘Surrendered for Dematerialization’ in every share certificate.
- The request is then transferred to the respective companies, transfer agents, and registrars.
- After the successful confirmation, your physical shares will be destroyed, and you will receive the digital shares in your demat account.
- You will also receive a confirmation on the completion of the entire process.
As mentioned earlier, you need to necessarily have a demat account if you want to dematerialize your shares, so make sure that you have all the documents required for demat account so that you can easily complete the process.
Once you have successfully filled the form with the necessary requirements, the request is processed.
It is only after the complete verification that the shares are converted into a digital format. So this process can take some time. But what is the dematerialisation time?
It usually takes around 15-30 days after the successful submission of your request form for your physical shares to get converted into digital form and transferred to your demat account.
In cases where the process is not completed within 30 days, you can reach out to your depository participant for help. And if that also doesn't solve your problem, you can directly reach out to the concerned depository and get it fixed.
Nothing comes for free in life. So the question is, are there any dematerialisation charges? Yes, the stockbrokers often charge you various dematerialisation charges. This is levied per certificate by the stockbrokers.
The charges can be anywhere between ₹25 to ₹50 or even higher. If you open a demat account with Choice Broking, you will have to pay ₹ 25 + GST per Certificate or 100 Securities whichever is higher for getting the shares dematerialised.
Even in the digital world, some people also request to rematerialize their shares. What does that mean? This means converting the digital shares back to the physical format.
There are different charges for this as well. With Choice Broking, you will have to pay ₹ 25 per 100 Securities or 0.04% whichever is higher + GST for getting your shares rematerialized.
So, in some simple steps and with a few charges, you can easily start trading with just a single touch.
The introduction of dematerialization and thus the demat account has made the life of an investor very convenient in the stock market. Along with the convenience, there are other benefits of dematerialization as well.
Let us have a quick look at some of them.
Safety is the most crucial aspect for every person involved in the share market. With the process of converting the physical shares in the digital form, the safety of shares was increased several folds.
There is no fear of theft, damage, or any other fraudulent activities.
2. Easy and Convenient
Imagine when in earlier times, you have to visit the broker or call him/her every time you have to place a trade? How tedious it might have been!
With dematerialisation, the process of placing a trade has become very convenient and accessible. You can just take a look at your holdings and place a trade sitting anywhere with just a click.
3. Quick Fund Transfers
When you link your bank account with your demat account, you can transfer the funds very conveniently and in a single click.
Dematerialisation has transformed share market and made it paperless. This has further reduced the cost of maintaining the shares as well.
Now you just have to pay minimal demat account charges and you are sorted. The administrative costs of the companies were also reduced post the introduction of demat account.
5. Loan Facilities
You can avail of the loan facilities against your securities easily with the help of a demat account. This makes it easier for the investors to pledge their shares and then get that extra capital to start trading.
With these various benefits, dematerialisation has surely transformed how a share market works.
The conversion of physical shares to a digital form has eased the process of stock market trading. It was necessary to stop all the hassle and also the growing number of fraudulent activities. There is no doubt that the demat account has made the stock market a safer space.
So gone are the days of managing and safeguarding various papers just to make profits.
Easily dematerialize your shares and have a better experience. But before that, open a demat account!