Holding share certificates in physical format carries risks like certificate forgeries, loss of important share certificates, and delays in certificate transfers. Dematerialization allows customers to convert their physical certificates into electronic format, thereby eliminating the aforementioned hassles.

What is Dematerialisation of Securities

What is the Dematerialisation of Securities?

Dematerialisation is a process through which physical securities such as share certificates and other documents are converted into electronic format and held in a Demat Account.

A depository is responsible for holding the securities of a shareholder in electronic form. These securities could be in the form of bonds, government securities, and mutual fund units, which are held by a registered Depository Participant (DP). A DP is an agent of the depository providing depository services to traders and investors as per the Depositories Act, 1996.

Currently, there are two depositories registered with SEBI and are licensed to operate in India:

NSDL (National Securities Depository Ltd.)

CDSL (Central Depository Services (India) Ltd.)

Short History of Dematerialisation

Post-liberalisation of the Indian economy in 1991, the Securities and Exchange Board of India (SEBI) was created in 1992 to regulate the capital markets. The SEBI in turn was instrumental in introducing the process of dematerialisation of securities via the Depositories Act, 1996. Further under the Companies (Amendment) Act, 2000 it became mandatory to release IPOs worth Rs 10 crore or more in dematerialised form only. Currently, you cannot trade in shares without a Demat account.

Process of Dematerialization

  1. Dematerialization starts with opening a Demat account. For Demat account opening, you need to shortlist a Depository Participant (DP) that offers Demat services
  2. To convert the physical shares into an electronic/Demat form, a Dematerialization Request Form (DRF), which is available with the Depository Participant (DP), has to be filled in and deposited along with share certificates. On each share certificate, ‘Surrendered for Dematerialization’ needs to be mentioned
  3. The DP needs to process this request along with the share certificates to the company and simultaneously to registrars and transfer agents through the depository
  4. Once the request is approved, the share certificates in the physical form will be destroyed and confirmation of dematerialization will be sent to the depository
  5. The depository will then confirm the dematerialization of shares to the DP. Once this is done, a credit in the holding of shares will reflect in the investor’s account electronically
  6. This cycle takes about 15 to 30 days from the submission of the dematerialization request
  7. Dematerialization is possible only with a Demat account, therefore it is essential to learn how to open a Demat account to understand dematerialization

Angel One is a DP registered with CDSL and offers a seamless process for opening a Demat account. If you would like to open a demat account with Angel One (with zero brokerage for stock investments) or simply want to check out the process click here.

Benefits of Dematerialization

There is a wide range of benefits of the dematerialisation of securities. Some of them are as follows:

Guarantees Convenience

You can conveniently manage your shares and transactions from anywhere (ie. it eliminates the need for the investor to be physically present), including via smartphone or computer. Conversion of securities into electronic equities deems you the legal owner of your shares. After this, certificates need not be transferred to the company’s registrar.

Reduced Costs

  1. Stamp duty is not levied on your electronic securities
  2. Holding charges levied are nominal
  3. You can buy securities in odd lots and buy a single security
  4. Due to the elimination of paperwork, the time required for completing a transaction gets reduced. The process also becomes environment-friendly due to reduced use of paper.

Must include Nominees

Including a nominee will allow the investor to grant a right to the nominee to operate the account in his/her absence

Safeguards Transactions

Securities are credited and transferred by electronic means. Hence, the risks associated with paper securities, such as errors, fraudulency and theft, are averted.

Help with loan approval

Existing securities like bonds and debentures can be used as collateral to procure a loan, often at a lower rate as securities become more liquid. 

Reduces Transaction Costs for all Stakeholders

There is a marked decrease in transaction costs as the depository ensures that entitlements are directly credited to the investor’s account. The costs of paperless tracking and recording securities becomes minimal. It allows stakeholders to focus on strategy and not clerical work, thereby increasing participation, liquidity and profits.

Speed e-facility

It enables you to send slips of instruction electronically to the depository participant. There are benefits of swift transfer like issues of bonus of shares, interest, dividend, stock splits, and refunds. It also increases liquidity in the market.

Temporary Freeze

You are also allowed to freeze your Demat account for a particular duration. However, you can only use this facility when your account holds shares of a particular number.

Share Transfer

Transferring shares using the Demat account becomes easier and more transparent. Only the thing required to send is a DIS (Delivery Instruction Slip), duly signed for transferring your shares to the participants of your depository.

Easy and Quick Communication

No need to visit brokers or other offices for information sharing or orders – leads to increased confidence of investors. Risk of delays is mitigated.

Increased Market Participation

Leads to increased volume of trading and liquidity in the market

Problems with Dematerialization

High frequency share trading

Easier communication and orders have made markets more liquid but also more volatile. Therefore investors often focus more on short term profits than long term gains. 

Technological challenge

People with low ability to handle computers fast or those with slow computers end up at a disadvantage with those having better software and computer skills

In addition to the advantages of dematerialisation outlined above, here is some more information to keep in mind while undertaking the process of dematerialisation of shares.

Dematerialisation of shares by a company

Any private limited company can become an issuer of Demat shares by signing an agreement with depositories like NSDL as well as with an existing Registrar and Transfer Agent (RTA). The RTA acts as an intermediary between the company and the NSDL and is responsible for completing the crediting and transfer of shares. Once the securities are admitted to the depository system, the NSDL will provide an International Securities Identification Number (ISIN) for each share of the company.

For safe and efficient handling of your securities, contact recognized stockbroking companies like Angel One, offering one of the best demat account services  in the industry. It is an Indian stockbroking firm doing noteworthy work since 1987.


What is the importance of dematerialisation?

Dematerialisation means converting physical share certificates into their electronic forms. It is an important milestone for the Indian equity market. It helped it to embrace digitisation and made the entire trading process smooth, glitch-free, and secure. Besides, it is,

  • Convenient
  • Safe
  • Efficient
  • Paperless, and
  • Multipurpose

How long does it take to dematerialise shares?

It usually takes between 15 and 30 days to convert physical shares into electronic format.

What is Depository?

A depository is a facility that functions as a safe keeper of things; it can be currencies, stocks, and securities. Banks are examples of financial depositories. Similarly, NSDL and CDSL work as custodians of shares to facilitate the trading system.

What are the benefits of availing depository services?

Depositories play multiple roles in the system. These are,

  • Offering convenience and safety
  • Making the trading process fast
  • Eliminate risks associated with bad delivery, delay, fake securities
  • Eliminating paperwork
  • No stamp duty levied on the transfer of securities
  • Offering advantages like low-cost transaction, nominee facility, loan against share, and more

What are the different types of depositories?

The three main types of depositories are,

  • Credit unions
  • Savings institutions
  • Commercial banks 

How much time does it take to process Demat request?

Converting your physical securities into electronic format will take 15-30 days.

What is the process of opening a Demat account?

Nowadays, you can conveniently open a DEMAT account online. You can fill in the application form online and complete the KYC process. Once your documents are verified your account will become active.

Depending on who you choose as your Depository Participant, you may have to pay some fees on your DEMAT account. However, with Angel One, you can open DEMAT account for free.