What Is Dematerialisation of Securities?
Dematerialisation of securities can be a great method to keep your physical securities safe and convenient. Not just that, there are multiple other benefits of dematerialising your securities. Here is everything you need to know.
What is dematerialisation?
Dematerialisation is the process to convert physical share certificates and other such certificates into an electronic format. These electronic share certificates are held in a demat (short for dematerialisation) account. These electronic forms of the shares exist as entries in the book of depositories.
How can you dematerialise your physical securities?
With the Indian capital market growing at a fast pace over the last decade, dematerialisation of share certificates and holding a demat account has become very popular. Here is the process to dematerialise your physical securities.
In order to dematerialise physical share certificates, the first step is to open a demat account. Your dematerialised shares will exist in this very demat account.
Here is the process to open a demat account and dematerialise your securities:
- Choose a Depository Participant The foremost step before opening a demat account is to choose a Depository Participant or DP. A Depository Participant is an agent of the depository, such as NSDL or CDSL. It is an intermediary between the depository and the investor. So you can handle your demat account through it. Amy bank, financial institution or stock broker complying with SEBI's guidelines can be a Depository Participant. You can check the DP's service history to make sure that they are reliable. You can also check the costs for dematerialisation before finalizing on a particular DP.
- Fill in demat account opening application Fill in the demat account opening form and upload scanned copies of all the necessary documents to complete your KYC (Know Your Customer).
- Sign an agreement with your DP Sign an agreement with the DP where you're explained your responsibilities and duties as a demat account holder. You must read the agreement carefully before finally signing it.
- Opening of your demat account Once your application and the documents are processed, you will receive a unique account number and a password. You can use this to have access to your demat account, anytime and anywhere.
- Pay the charges Every demat account holder needs to pay some charges for the maintenance of the account, transactions etc. The exact charges are depend on the DP.
- Fill up the DRF form and submit the necessary documents
Now that you have a demat account, the next step is to fill up the Dematerialisation Request Form (DRF), which can be found on the DP's website. The DRF needs to be duly filled and submitted along with the physical share certificates. You will also have to submit the required documents. You will be required to provide a proof of identity and a proof of address.
Here it is important to mention that for every physical share certificate, you need to fill up a separate DRF form.
- In-Person Verification A representative from the DP will get in touch to verify all your documents. Once that is done, the processing begins. If the DP is satisfied with your share certificates and documents, it will forward your dematerialisation request to the Registrar and Share Transfer Agent (R&TA). The R&TA of the company will finally accept your demat request.
- Final conversion The physical share certificate will now be converted into electronic modes and the physical certificate will be destroyed. The dematerialisation will be confirmed to the depository. The depository will in turn send a confirmation to the DP. The shares will be credited to your demat account that you can access remotely.
Benefits of dematerialisation
Now that you know how to dematerialise your physical securities, here are the benefits of a demat account.
- Lower risk Physical share certificates always had the threats of damage, loss, fraud, theft etc. However, demat accounts are a safe place to keep and trade your shares in electronic form.
- Convenience of accessibility You, as an investor, can have access to your demat account from any device with an internet connection. So if you have a computer or a smartphone with an internet connection, you can log into your demat account with your unique client ID and password. You can view all your investments, returns, dividends etc. on a single account.
- Trades physical shares through the stock exchange Today, almost all trades in the stock market happen in dematerialised mode only. Shares bought through the stock exchange is directly credited to your demat account and reflects within a very short period of time. Unlike with physical share certificates, you do not have to have the shares transferred to your name manually. The whole process happens automatically. Additionally, there is no scope for a delay in transfer.
- Fund transfer You can also transfer funds electronically by linking your demat account to your bank account. This can be done at any point of the day and eliminates the hassles of writing a cheque or visiting the ATM.
- Minimal paperwork One of the biggest advantages of dematerialisation is the elimination of paperwork. Be it trading of shares or transfer of funds - you need close to zero paperwork to get anything done. This is not just convenient but also environmentally-friendly!
- Reduced cost With physical security transfers, stamp duty charges were quite significant. But with dematerialised shares, there are no such costs.
- Transmission of securities to the nominee In case a loved one passes away and you remain as a nominee of their shares, you can get it transmitted to your demat account through your DP easily. This process of transmission is extremely long in the case of physical certificates, where each company (whose shares you hold) has to be informed before transmission.
- Updates on corporate actions With dematerialised shares, you will be automatically updated about information such as issue of stock splits or bonus shares. This makes it easy to track the actions of the company as an investor.
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Yes,this process is known as rematerialisation. For this, you have to fill up a Rematerialisation Request Form (RRF), available at your DP’s website. The process is similar to when you filled up your Dematerialisation Request Form (DRF). The DP will forward your request to the R&TA of the company whose shares you want to rematerialise. The R&TA of the company will issue your physical share certificates.
As per SEBI’s guidelines, the Depository Participant is required to process the Dematerialisation Request Form within 7 days. The R&TA of the company might take up to 15 more days to process the dematerialisation request. Hence, you can expect it to be done in approximately 30 days. Even though the process seems long, once it’s done, you can enjoy multiple benefits.
In case there is a delay, you can contact the DP staff. You as the Beneficial Owner can also file a complaint to the Investor Grievances Department of the depository.
Yes, you are allowed to open more than one demat account with the same DP. There is no limit to how many demat accounts you can open, given that the DP is the same.
Yes, you need two separate demat accounts to dematerialise shares that you hold individually and jointly with another partner.
Yes, you can hold your mutual fund units and government securities in an electronic mode in the same demat account.