There was a time when investors physically took shares, put them in suitcases and went to their stockbroker to sell them. Similarly, whenever anyone bought shares, they would take a stack of files from their broker, which they had to keep. Of course, they had the option of staying with the broker, but it could be a risky affair.
Now, the term ‘dematerialisation’ seems to be a heavy technical term. But it is basically a way to convert your stock into non-physical form. After dematerializing your shares, you do not need to physically access the stock. In fact, all of these shares are transferred to a demat account that can be transferred online, anytime, anywhere without anyone else’s dependence. The only difference between a bank account and a demat account is that money is taken care of in the bank account, while in a demat account your investment products such as equity shares are taken care of.
Demat accounts are managed by the depository only. In India, there are two such depositories named as NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited). If you want to open a demat account, you need to get in touch with a depository partner (or stockbroker) who is a member of any of the above depositories. However, shares that are being dematerialized and transferred to your demat account should be in your name.
Process of Dematerialisation
(1) Submission of Demat Request form ( DRF ) – In the very beginning, beneficiary owners or clients submit Demat Request Form ( DRF ) to their depository participants along with the securities ‘ certificates. A single DRF can be used for the dematerialization of multiple companies ‘ securities.
(2) Transmission of Demat Request to Depository – Depository participant cross checks DRF and securities ‘ certificates. DP accepts client ‘ s request only if following details are found correct –
- Client ‘ s signature on the DRF is verified with the specimen signature.
- Names on DRF, certificates and client account must be same.
- ISIN ( International Securities Identification Number ) of companies securities.
- Distinctive numbers of securities.
(3) Sending Request to Depository and R&T agent – After the acceptance of demat request, DP enters the details of DRF in its database and electronically communicates the same information to its depository and issuer ‘ s R & T agent.
(4) Dispatch securities certificate to R&T agents – The DP dispatches the certificates along with the request form and a covering letter to the Issuer / R&T agent.
(5) Inspection of securities certificates – Issuer ‘ s registrar and transfer agent inspects request form and certificates received from the DP. R&T agent accepts the request of dematerilaisation only if certificates are found original and request form is found in order.
(6) Transfer Dematerialized securities to the Clients – Depository ( NSDL ) electronically creates appropriate credit balances in the client’s demat account just after getting the acceptance of the request from the R&T agent.
(7) Confirmation Report – Depository participant sends confirmation report to its client.