Dematerialisation of Physical Shares

Dematerialisation of shares means converting your shares in an electronic format which will require a demat account for the same. One needs to file a dematerialisation request form along with physical share certificates.

What is the dematerialization of shares?

It is a process to convert existing physical securities such as share certificates and other documents to electronic format. For conversion, a person is required to open a Demat account with depository participant and file a dematerialisation request form along with his share certificates.

The conversion is maintained in an account with the depository participant. Currently, there are two depositories which registered with Securities and Exchange Board of India (SEBI) and are licensed to operate in India:

  • NSDL (National Securities Depository Ltd.)
  • CDSL (Central Depository Services (India) Ltd.)

What can you do with your dematerialised shares?

After dematerialisation of shares, one can sell, purchase or transfer their shares from anywhere they want. The dematerialisation process normally takes between 15-30 days.

Steps to purchase dematerialised shares

  1. One needs a broker who can easily by the dematerialised shares
  2. The broker will then arrange for clearing the corporation on the pay-in day
  3. On the payout day, the shares are transferred to the broker’s account
  4. After receiving the shares, the broker will then ask the depository participant (DP) to debit the clearing amount and transfer the same to your account
  5. After the confirmation from the depository, a credit in the holding of shares will be reflected in the investor’s account
  6. Followed by a confirmation that the shares are transferred into your account.
Note: You will need to give Receipt Instructions to the DP if you did not give standing instructions at the time of opening your account

Steps to sell dematerialisation of shares

  1. You need a broker to sell your shares linked with NSDL
  2. The depository participant will be informed about the same and after which he will debit the number of shares sold and credit it to the broker’s clearing account
  3. Once the request is made, share certificates, if kept in physical format, will be destroyed, and the confirmation for the same will be sent to the DP
  4. The broker will then instruct the DP for delivery to the clearing corporation before the pay in a day
  5. After the shares are transferred from your end, you will receive the payment from the broker against the sale of your shares.

Why is the dematerialisation of shares required?

Dematerialisation of shares helps investors in avoiding various problems that they have to face while dealing with securities. They help in minimising the paperwork that is involved with the ownership, trading, and transfer of securities.

  • As a demat account is operated electronically, it allows uninterrupted management of share transactions, and it does not require the investor to be physically present to settle transactions
  • Conversion of securities into electronic equities provides you with the legal ownership of your shares. After this, certificates need not be transferred to the company’s registrar
  • One of the main benefits of a Demat account is that you can link it to your bank account which helps in facilitating easy transfer of funds
  • A demat account requires a nominee. A nominee holds the right to operate the account in investor’s absence
  • As shares are credited and transferred by electronic means, the risks associated with paper securities, such as fraudulent and theft, are also avoided.
  • Existing securities like bonds and debentures can also be used as collateral to take loans.

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