What is Dematerialisation: Meaning, Process & Benefits

Dematerialisation means transferring your physical securities into digital or electronic form. The main goals are to make the process of purchasing, selling, transferring, and holding shares easier and more reliable while also keeping costs down. Rather than being kept on paper certificates, all of your securities are kept in electronic form. Let's explore dematerialisation meaning in more detail. 

The Securities and Exchange Board of India, or SEBI, is home to two depositories with the names Central Depository Services India Limited (CDSL) and National Securities Depository Limited (NSDL). 

How does Dematerialisation Work?

The dematerialisation of shares process involves converting physical share certificates into electronic form through a Depository Participant. This process eliminates the dependence on brokers and other intermediaries for trading securities. Dematerialisation of shares gives shareholders complete control.

The Dematerialisation of the securities process also relieves you of additional expenses. It simplifies the trading process by providing a safe platform for global investors to invest, interact, and earn. Thus, by using technology, Dematerialisation simplifies trading.

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Process of Dematerialisation of Shares

The process of Dematerialisation of securities consists of the following five simple steps:

• Step 1: Opening the Demat Account With DP 
  The first step towards the procedure for dematerialisation of shares is to open a Demat account. For this, you need to shortlist Depository Participants (DPs) that provide Demat services. 
• Step 2: Fill Out the DRF (Dematerialisation Request Form) 
  To convert physical shares into electronic form, a Dematerialisation Request Form (DRF) must be filled out and deposited along with the share certificates with the DP. Additionally, it is necessary to mention “Surrendered for Dematerialisation” on each share certificate.
• Step 3: DP Processes Request 
  DPs need to process this request along with the share certificate and send it to registrars and transfer agents simultaneously.
• Step 4: Request Approval 
  As soon as the request is approved, the physical share certificates will be destroyed, and the depository will receive confirmation of the Dematerialisation.
• Step 5: Confirmation of Dematerialisation 
  A confirmation of the Dematerialisation of the shares process will be provided to the DP by the depository. An electronic credit will appear in the investor’s account once this has been done. After submitting the Dematerialisation request, this process takes 15-30 days.

Why is Dematerialisation Needed?

After understanding what is dematerialisation, let’s understand why it's needed. The difficulties of handling a significant amount of paper-based documentation lead to the necessity for dematerialisation. The accumulation of papers raises the possibility of misplacing crucial records, which could cause problems for the Indian share market and related industries. Additionally, because it lowers the stamp tax on share transactions, it results in savings. If the original certificates are misplaced, it also saves time and money to obtain duplicates.

Dematerialised shares are not at risk of loss during transit because credits and bonuses are deposited straight into the shareholder's account.

Advantages of Dematerialisation

Here are some advantages of Dematerialisation follows:

• Reduced paperwork: The requirement for the physical shares is eliminated through Dematerialisation, which lowers the amount of paperwork needed for trading in shares and transfers.
• Convenience: Having stocks in electronic form removes the possibility of losing or injuring traditional share certificates and is more practical.
• Speed: The stock purchase and sale process has become faster and more efficient as a result of the Dematerialisation of the shares process.
• Transparency: The trading process has become more transparent as a result of Dematerialisation, which allows investors to easily watch their holdings and transactions.
• Cost savings: The price of the printing process, stamping, and managing physical share certificates has decreased as a result of Dematerialisation.
• Reduced fraud: The danger of fraud connected to tangible share certificates, such as fraudulent certificates, duplication, or theft, has decreased as a result of Dematerialisation.

Disadvantages of Dematerialisation

Here are a few disadvantages of Dematerialisation as follows:

• Tech issue: Dematerialisation is heavily dependent on technology, and any system disruption or failure could result in serious issues for investors.
• Risks related to cyber security: As electronic share trading becomes more prevalent, there is a higher chance that data breaches and cyber assaults will threaten the safety of investors' shares.
• Complexity: For some investors, particularly those who aren't tech-savvy or acquainted with the process, the dematerialisation process might be complicated and confusing.
• Additional costs: Keeping a Demat account & conducting electronic share trading may incur additional costs for investors.
• Limited accessibility: Not all investors have access to dematerialisation yet, particularly those who reside in isolated or rural locations where they do not have access to the required infrastructure or technology.

The Benefits of Dematerialisation

Here are some of the benefits of dematerialisation:

Ease in management

With electronic certificates, you can trade and manage your shares whenever it's convenient for you. Dematerialisation reduces the requirement for physical presence, which saves time, money, and effort. To move your shares in and out of your Demat account without any risk or bother, all you need is a computer, laptop, or smartphone. Dematerialisation also confers legal ownership of the shares you possess. 

Time-saving, cost-effective, and environment-friendly

Dematerialisation assists you in avoiding unnecessary costs that could otherwise strain your budget. Stamp duty charges are avoided because e-securities are exempt from them. Additionally, there are no holding fees for shares in Demat accounts. Dematerialisation allows you to purchase stocks in any quantity according to your income level. In addition, dematerialisation reduces paperwork, which prevents paper waste.

Safest trading method

Dematerialisation converts all of your tangible securities into an electronic format. This conversion removes the risk associated with share trading. You won't have to worry about identity theft, forgeries, or theft when buying, selling, or trading your stocks.

Fast loans

It is easy to obtain a low-interest loan by using your assets, such as bonds and debentures, as collateral. Dematerialisation makes it easier for your assets to trade across a variety of platforms, which boosts their liquidity.

Additional  Benefits

• Elimination of the need to deal with brokers and their heavy fees.
• Instant share transfers and trading opportunities.
• More trading options that suit your preferences and budget.
• Owners can freeze their Demat accounts based on their needs.

Conclusion
The process of turning physical securities into digital format, which is easier, quicker, and more secure, is known as Dematerialisation. To trade on the stock market in India, investors must undergo Dematerialisation. Opening a Demat account, providing physical share certificates, being verified, dematerialising, holding digital shares, and trading are all part of the procedure.
Dematerialisation has several advantages, like less paperwork, greater transparency, and a decrease in fraud, but it also has significant drawbacks, including reliance on technology, cybersecurity threats, complexity, and extra costs. In general, dematerialisation has changed how assets are exchanged and made it a crucial step towards improving the efficiency and transparency of the financial markets.