Dematerialization can be understood as the process by which a trader or an investor can have his physical certificates converted into their electronic format. If an investor wishes to dematerialize the shares he holds, it is mandatory for him to have an account with the Depository Participant.
FEATURES OF DEMATERIALIZATION OF SHARES
Some important features of dematerialization are as follows:
- To dematerialize a holding, it has to be admitted by the National Securities Depository Limited for dematerialization.
- You can dematerialize a certificate, only if it is registered in the name of the account holder.
- The names given for the demat account and the names of those holding the securities should be identical.
- Demat confirmation is received in about 30 days of sending the demat request by the client.
- Securities issued by the Government of India have a special dematerialization process.
DEMAT ACCOUNT OPENING PROCEDURE
Before you begin with the process of dematerialization, you must know the meaning of demat and trading and open a demat account. These days, you can download a traders’ app to ease out the processes.
- The process of dematerialization begins with the Demat account opening procedure by the investor.
- The investor approaches the Depository Participant with his account opening request. A Depository Participant is required to be registered with the National Securities Depository Limited (NSDL) or the Central Depository Services Limited (CDSL). The NSDL and the CDSL hold the investors’ securities in an electronic form and allow the investors to make transactions.
- As per the provisions under Section 5 of the Depository Act, 1996, to get the benefit of the services provided by the depository, the account holder has to enter into an agreement with the depository. He has to fill up the account opening form and provide relevant documents related to the Proof of Identity (Driving License, Voter Identity Card, Electricity Bill or Telephone Bill) and the Proof of Residence. The Securities and Exchange Board of India (SEBI) has specified the required documents.
- The Permanent Account Number (PAN) of the investor is also required at the time of account opening, as specified by the SEBI.
BENEFITS OF DEMATERIALIZATION
Dematerialization has multiple benefits for investors like:
- Reduction in the risk of robbery and theft: Since dematerialization leads to storing the stocks and securities in an electronic form, it minimizes the possibility of these electronic holdings being forged or stolen, unlike their physical counterpart.
- Easy transfer of shares and stocks: Earlier, the transfer of shares and stocks was a very time-consuming process. The investor was required to first send these securities to the Company or to the Registrar, to transfer the ownership of the securities into the name of someone else. This process took several days, even months. Moreover, there was a high chance of these securities getting misplaced in transit. Dematerialization has eliminated all these fears for investors and traders.
- No need for stamp duty on transfer of securities: Before the dematerialization of shares came into use, the investor had to visit the stock exchange and purchase share transfer stamps to paste them below the physical certificates. This process has been eliminated now and the investor simply needs to pay a security transaction tax to transfer securities.
- Selling odd numbers of shares: When physical securities were used, individual investors could not sell odd numbers of shares. Now, using the electronic medium, investors can sell any number of shares they wish to, even as low as a single share.
With the dematerialization of shares, opening a Demat account has become a basic requirement for every investor and trader. Demat accounts eliminate the risks and complications that were involved in physical certificates. Dematerialization has empowered investors and made trading safer and less time-consuming for them.