One of the main reasons for having a Demat account is to dematerialize shares. Remember, when Demat was first introduced, people only had physical shares. The first step was to get all these shares dematerialized. That involved converting physical shares to Demat. To understand how to convert paper shares to Demat is what this segment is all about. The focus here will be on the elaborate dematerialization process and how it can be accomplished with minimal hassles.
The first thing is that you obviously need a Demat account. Once you open a demat account, it is only then that you worry about how to convert the share certificate to Demat. If you look at it dispassionately, the process of dematerialisation of shares is relatively simple, with most of the tough job happening at the back end. You only need to ensure that you submit the DRF properly filled up to the DP to convert physical shares to Demat online.
The dematerialization of physical shares begins with the submission of the DRF or Demat request form to the DP along with adequate documents. You need to ensure that your signature is matching, otherwise it can be rejected. The entire process takes less than a month. Once that is completed, and you get the credit of an equivalent number of electronic shares into your Demat account, the physical share certificate dematerialization process is well and truly completed.
What is a Demat Account?
The Demat account, which is short for Dematerialized accounts, is a digital account that is used to store and handle various types of financial securities in digital form. They can be bonds, stocks or mutual funds, government securities and various many other instruments of finance. The aim of the demat account is to replace traditional security certificates with electronic documents.
Table of Content
- What is a Demat Account?
- What is Dematerialisation?
- The Process of Dematerialisation
- Advantages of Demat Account
- Why Dematerialization? Advantages of Dematerialized Shares
- Difference Between Dematerialization and Re-materialization
- Steps To Convert Physical Shares Into Demat Shares
- Documents Required to Convert Physical Share Certificate to Demat
- Disadvantages of Using Physical Share Certificates for Trading of Shares
What is Dematerialisation?
Dematerialization, often called Demat, has revolutionised the traditional paper-based trading system. It converts physical share certificates into a digital format, making transactions faster, more secure, and highly efficient. This article explores dematerialization's impact on the stock market.
The Process of Dematerialisation
The dematerialization process begins with the establishment of a Demat account.
Choose a Depository Participant (DP): Opt for a financial firm or brokerage service firm acting as a Depository Participant.
Complete an Account Opening Form: Provide your basic contact details in the designated account opening form.
Document Submission for Verification: Furnish copies of your income, identity, and address proofs, along with evidence of an active bank account and a passport-sized photograph. Ensure all documents are appropriately uploaded.
Execute a Standardised Agreement with the DP: Enter into an agreement with the DP that outlines the rules, charges, and terms governing the relationship between you and the depository participant.
Document Verification: A representative from the DP will review all the submitted documents for authenticity.
Generation of Demat Account Number and ID: After successful document verification, your Demat account number and corresponding ID will be generated. This information grants you access to your online Demat account.
Advantages of Demat Account
With the introduction of Demat accounts now there are lots of difficulties which are now solved through online Demat accounts. You can know more advantages of demat account which are as follows:
Easy handling: Having a Demat account also allows investors to access various financial services such as online trading platforms and portfolio management services. These value-added features provide individuals with greater control over their investments and empower them to make informed decisions based on real-time market data.
Quicker transfer: Demat accounts enable easy and quick transferability of shares. This means investors can buy or sell securities with just a few clicks, eliminating the need for lengthy paperwork and physical transactions. Moreover, this electronic method ensures that transactions are processed faster and settlement takes place in a much shorter time frame compared to traditional paper-based systems.
Encrypted your holdings: With a Demat account, you can get a safe and secure method of holding your assets. In contrast to certificates made of physical material, which could be stolen, lost or destroyed, the electronic information stored in the Demat account is secure. It reduces the chance of physical incidents or fraud.
Lower Costs: Buying physical securities comes with costs like handling fees as well as stamp duty. Demat accounts reduce those costs since the necessity to purchase physical certificates as well as the associated costs are reduced.
Why Dematerialization? Advantages of Dematerialized Shares
The dematerialization process serves a crucial purpose - guiding individuals on the conversion of physical shares to dematerialized form, a mandatory move enforced by SEBI. Once shares are converted to Demat through the opening of a Demat account and following the prescribed process, ownership rights become legally binding.
This transformative process offers a multitude of advantages once investors grasp how to convert physical shares into Demat:
- Convenience: Trading and transferring dematerialized shares is streamlined, bypassing the need for physical handling or extensive paperwork. This enhances the efficiency and transparency of buying and selling shares.
- Enhanced Security: Dematerialization mitigates the risks of theft or damage often associated with physical share certificates.
- Cost-Efficiency: The process significantly reduces transaction costs by eliminating expenses related to printing and dispatching physical certificates. Additionally, it expedites transaction settlement times.
- Versatility: The shift from physical to dematerialized shares empowers investors with heightened trading and investment flexibility. Now, the buying and selling of even a single share can be executed swiftly within seconds.
Difference Between Dematerialization and Re-materialization
Here is the difference between dematerialization and rematerialization:
|Converts physical shares to Demat, providing secure and efficient trading and holding of securities.
|Allows digital securities investors to get physical share certificates.
A one-time conversion from physical to Demat shares.
|Can be initiated anytime after dematerialisation and can be reversed multiple times.
The dematerialized shares are maintained and managed by NSDL and CDSL.
Physical share certificate issuers are responsible for the upkeep of re-materialised securities.
Steps To Convert Physical Shares Into Demat Shares
Here are the steps to convert your physical shares into Demat accounts or electronic shares.
- Step 1: If you already have a Demat account with a SEBI-registered DP, then it is well and good. However, in case you don’t have a DP account, the first thing you need to do is to open a beneficiary account with a Depository Participant (DP). You can today open a DP account entirely online with the BlinkX trading app.
- Step 2: The next step is to go to your DP or post on DP address filled Demat request form (DRF). When you submit the DRF, remember that you also need to carry your physical shares with you and surrender them to your DP while filling out the form.
- Step 3: In the next step, a special and unique Dematerialization registration number (DRN) will be generated by your DP. After that, these details would be fed into your Demat request form or DRF and sent to the Registrar and Transfer agent along with your original share certificates. Normally, the DP does a first level check and asks the investor to make rectifications if needed.
- Step 4: In Demat, the shares are all held in the name of the Depositories. The customer holds the beneficiary account with the depository, which shows how many shares he holds in the company. Now, the number of shares getting dematerialised will be recorded in the Register of Members.
- Step 5: At last, the depository participant will credit the equivalent number of shares to the Demat account of the investor. That completes the dematerialization process.
After the completion of the above steps, you can check your Demat account balance and verify your holdings on your Demat account online. For any queries, you can connect with your broker and clear your concern.
Documents Required to Convert Physical Share Certificate to Demat
For a successful conversion of physical shares to Demat, SEBI requires specified papers. The following is a list of documentation needed in India:
- Proof of Identity: Valid photo ID cards like driving licence, voter ID, PAN card, or Aadhaar card.
- Proof of Residence: Documents such as driver's licence, passports, utility bills (electricity, gas, telephone), insurance copy, lease agreements, etc.
- Proof of Financial Statements: Bank passbook or account statement for the last three months.
- Original Physical Share Certificates: They should be in good condition with clearly legible information.
- Duly Filled Dematerialisation Request Form: Separate forms for each company if converting shares from multiple companies.
- Defacement of Physical Share Certificates: Write 'Surrendered for Dematerialisation' on each certificate.
- Acknowledgement Slip: Provided by the DP upon surrendering the physical share certificates.
Disadvantages of Using Physical Share Certificates for Trading of Shares
Comparing the trading of securities held in a Demat account to that of actual share certificates has various drawbacks.
- Trading or investing with real share certificates can be time-consuming and inconvenient. For investors who live in rural places in particular, it requires the physical delivery of share certificates, which can be expensive and time-consuming.
- Lower Security, Physical share certificates might be misplaced or stolen, costing investors a lot of money. Additionally, there is a security issue because unauthorized individuals could abuse the certificates.
- Due to the high transaction costs associated with producing, shipping, and authenticating actual certificates, trading or investing in them can be pricey.
- Delayed Settlement, because physical delivery and certificate verification take time, transactions involving physical share certificates may not settle right away. Missed trade chances and financial losses may arise from this.
- Lack of Flexibility, the ability of investors to trade shares may be constrained by the possession of actual share certificates. In a market that moves swiftly, it may be challenging to sell or acquire shares quickly or in small amounts.
As we discuss Demat accounts & steps to convert physical shares into electronic ones, now you can open a Demat account with a reliable broker such as BlinkX. You can invest in different stock market investments. You can explore different trading strategies from BlinkX trading platform.
FAQs on Physical Shares to Demat
Dematerialization is the process of converting physical share certificates into an electronic format for easier trading and management.
To dematerialize, fill out a Demat Request Form (DRF) with your Depository Participant (DP), submit physical certificates, and provide the necessary details.
Dematerialization offers faster, more secure, and more convenient trading. It eliminates risks associated with physical certificates and allows easy tracking of investments.
Yes, DP may charge nominal fees for dematerialization. However, the long-term benefits of electronic holdings outweigh the initial costs.
Yes, through Rematerialization. Submit a Remat Request Form (RRF) to your DP, and after due process, receive physical certificates within a defined period.