De-materialization

De-materialization is a recently introduced process by which physical share certificates are converted into electronic form. If you own shares in a company, then you must be in possession of share certificates. Dematerialization means surrendering the physical form of shares to a depository and receiving the shares electronically.

A depository is like the central bank of the country, and depository participants (DPs) are like the banks with which you can open an account so as to enable the depository to credit your account with these shares.
According to Securities Exchange Board of India (SEBI) guidelines, banks, custodians and stockbrokers can become DPs.

An investor submits his shares to the DP who will in turn send the shares to the company for dematerialization. This is a process by which the company cancels the physical shares and credits your account with an equal number of shares. If you are holding shares for many years, it is quite likely that the company may ask for a reconfirmation of your signature, as there may be some differences in the signature in their records and your current signature.

Once the account is opened and shares are dematerialized, buying and selling of these shares is done through this account. The DP gives each investor or 'account holder' a passbook (just like a bank passbook) or a statement of holdings, which is regularly updated. When shares are converted into the electronic form, they will be credited to your account and if they are sold, they will be debited. At the end of every fortnight, you will receive a statement of account showing the number of shares debited and credited into your account.

When trading is done through the electronic mode, investors have to pay fees similar to the brokerage. However, the charges are lower than brokerage, as the physical counting of shares is absent.

While it is not yet compulsory that all the shares listed on the stock exchanges are dematerialized, the NSDL regularly announces the companies whose shares have to be compulsorily dematerialized. But there is a steady increase in the number of companies trading in the dematerialized shares.

Dematerialization Process:

Once the account is opened, your existing shares can be dematerialized and converted into Electronic Form. Dematerialization is a process by which you can deposit (i.e. demat) shares of any company listed on NSDL which are registered in your name and convert your physical holdings into electronic form. For this purpose, you have to

1. Fill a Dematerialization Request Form available with your participant.
2. Submit your share certificates along with the above form. (Please write ‘Surrendered for Dematerialization’ on the face of each certificate before you submit it for dematerialization).
3. Your account will be credited within 15 days.
4. If you wish to convert your electronic shares back to physical shares at a later stage, you may do so by applying for rematerialisation.