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Why is Dematerialisation Necessary?

Before dematerialisation, you had to possess your securities in the form of physical shares. Managing your investment electronically is much easier than keeping your securities as paper documents.


Not just that, but a Demat account also eliminates the risk of misplacement or theft of your record of securities. In addition to this, you can also save 0.5% on stamp duty when you transfer your securities. 

Dematerialisation is a process that transformed the way you trade and hold shares in India. The process involves converting physical share certificates into electronic forms, which are then held in a Demat account


In 2019, Securities and Exchange Board of India (SEBI) stopped the physical transfer of shares in India. This means that while you can continue to hold physical shares, you can’t get new shares in the physical form.


Dematerialisation seeks to promote transparency, reduce the risk of fraud, and make the process of buying and selling shares more efficient. 


Read on to know the process of dematerialisation, its benefits, and much more.

The Dematerialisation Process

The dematerialisation process involves converting physical share certificates into electronic forms. The process is initiated by submitting a request to your depository participant (DP). A DP is a registered depository agent providing Demat account services to investors.


You need to fill out a dematerialisation request form (DRF) and submit it to your DP. The DRF contains details of the shares to be dematerialised, including the company’s name,

the number of shares, distinctive numbers, and folio numbers.


The DP verifies the DRF and forwards it to the respective Registrar and Transfer Agent (RTA) of the company. The RTA then confirms the request details and verifies your ownership of the shares.


Once the RTA confirms the request, it authorises the transfer of shares to your Demat account. Your Demat account is then credited with the electronic form of the shares, and the physical share certificates are destroyed.


It is essential to know how the dematerialisation of shares takes place, especially if you are a beginner in trading.

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Benefits of Dematerialisation

Elimination of Physical Certificates

The most significant advantage of dematerialisation is the elimination of physical share certificates. This reduces the risk of loss, theft, or damage to the physical certificates. It also eliminates t Read Morehe need to maintain physical records of your investments. Read Less

Faster Transactions

It allows for quicker and more efficient transactions in the stock market. It eliminates the need for the physical transfer of shares, which can take time and involve additional costs.

Reduced Costs

It saves the money you would pay on stamp duty, handling charges, and other costs associated with physical share certificates. It also reduces the cost of storage and maintenance of physical records.

Easy Access

Dematerialisation allows you to access your Demat account online and keep track of your investments. It also allows for easy transfer of shares from one Demat account to another.

Increased Transparency

It increases transparency in the stock market by reducing the risk of fraudulent activities. For instance, it removes fake share certificates or multiple certificates issued for the same shares.

Drawbacks of Dematerialisation

While the introduction of Demat accounts simplified trading, there are some drawbacks associated with the dematerialisation process. 

  • High-Frequency Trading

Digital advancement simplifies trading, and now you can transact in stock markets with just a single click. This has led investors to be a lot more impulsive with their trading decision, even if their strategy does not call for it. Such trades are generally bad for wealth generation, especially over the long term. 

  • Technical Skill Gap

Individuals who are not familiar or well-versed with computer and smartphone operations may find it difficult to trade using a Demat account.

  • Annual Fees and Charges

To maintain your Demat account, irrespective of whether you hold securities in it, you will have to pay an annual charge. The amount varies and it depends on the depository participant you choose.

Reasons for the Need for Dematerialisation

It is hard for investors to manage huge amounts of paperwork. An increasing amount of paperwork may lead to the loss of your physical share certificate. In addition, there is always a persistent threat of the physical shares certificates getting stolen. 


On the other hand, dematerialised shares are digitally stored, and in one account. Hence, it is easier to keep track of them. A depository is responsible for recording your transactions, and it authorises the transfer of shares to your Demat account.


While they cannot be lost in transit, shares in electronic form also help you save on stamp duty and offer lower interest rates for loans associated with Demat accounts. 

Process of Dematerialisation of Shares

SEBI has made it mandatory for investors and traders to convert their physical shareholdings into dematerialised forms to transfer them. If you are planning to dematerialise your shares, here are the simple steps that you must follow:


  • You must have a Demat account in order to convert your physical shares into electronic form

  • Visit your Depository Participant (DP) or stockbroker with whom you have a Demat account 

  • If you still do not have a Demat account, you can open it through a DP by filling in the account opening system along with the KYC documents 

  • You can submit an application for dematerialisation of shares, which may take anywhere between two to four weeks

Dematerialisation Charges

There are some charges associated with the dematerialisation process. These charges include:


  • Account Opening Charges: You must pay a one-time fee to open a Demat account

  • Annual Maintenance Charges: You must pay a yearly fee for maintaining your Demat account

  • Transaction Charges: You have to pay a fee for each transaction made through your Demat account 


Remember that the charges for dematerialisation vary depending on the Depository Participant and the number of shares being dematerialised.

Documents Required for Dematerialisation

The documents required for dematerialisation include the following:


  • Dematerialisation Request Form (DRF): The DRF needs to be filled and submitted to the DP

  • Physical Share Certificates: The physical share certificates must be submitted to the DP along with the DRF

  • Know Your Customer (KYC) Documents: You have to submit your KYC documents to the DP

  • Power of Attorney (POA): You must submit a POA authorising the DP to carry out dematerialisation on your behalf

Future of Dematerialisation

The future of dematerialisation in the stock market looks bright as more and more investors opt for electronic shares. Furthermore, with technological advancement, dematerialisation is likely to become even more streamlined, efficient, and cost-effective.


One of the key developments in the future of dematerialisation is the increasing use of blockchain technology. Blockchain technology is a decentralised,

distributed ledger that enables secure, transparent, and tamper-proof transactions. 


This technology can be used to create a secure and transparent system for maintaining and transferring electronic shares. The future of dematerialisation also includes the integration of artificial intelligence (AI) and machine learning (ML) in the process. 


AI and ML can be used to analyse large amounts of data and identify patterns that can help you make better investment decisions. They can also be used to automate the dematerialisation process, making it more efficient and cost-effective.


As the dematerialisation process becomes more streamlined and cost-effective, more investors are likely to opt for electronic shares. This would further drive the growth of the stock market in India.


Dematerialisation has transformed the way we invest in the stock market. While some charges are associated, the benefits outweigh the costs. As technology continues to evolve, we can expect to see even more advancements in the world of dematerialisation. 


Whether it is through the use of blockchain technology or other innovative solutions, the future of dematerialisation is bright. As a result, investors can look forward to a more efficient and streamlined process that lets them focus on what really matters: making smart investment decisions.

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FAQs on Dematerialisation

Is dematerialisation mandatory for investing in the stock market in India?

Yes, dematerialisation is mandatory for all investors who wish to invest in the stock market in India.

Are there any charges associated with dematerialisation?

Yes, there are charges related to dematerialisation, including account opening charges, annual maintenance charges, transaction charges, and courier charges.

What documents are required for dematerialisation?

The documents needed for dematerialisation include the dematerialisation request form (DRF), physical share certificates, Know Your Customer (KYC) documents, and power of attorney (POA).

How long does the dematerialisation process take?

The dematerialisation process can take from a few days to a few weeks, depending on the depository participant and the number of shares being dematerialised.

What is the meaning of dematerialisation?

Dematerialisation is the process of converting physical shares into electronic form. 

Is there an option to convert my dematerialised shares held electronically back into physical form?

Yes, you can convert your dematerialised shares into physical form, and this process is called rematerialisation.

What is an example of dematerialisation?

Consider that you purchased shares of Company X in 1999 in physical form. However, if you now wish to dematerialise your shares, all you have to do is fill out and submit a DRF with your DP. 


The DP will process the request and credit your shares in your Demat account within two to four weeks of submitting your DRF.

What is the role of dematerialisation?

The role of dematerialisation is to eliminate all risks associated with holding shares in physical form. It also facilitates easy, quick, and simple process trading and investments.

What do you mean by depository and dematerialisation?

Dematerialisation is the process of converting your physical share certificates into electronic form. On the other hand, a depository is an entity responsible for maintaining the records of dematerialised securities.

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