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What Is Dematerialisation & How to Convert Physical Shares to Demat

What Is Dematerialisation & How to Convert Physical Shares to Demat

Dematerialisation refers to the process of converting physical share certificates into electronic form. Through this process, investors hold their securities digitally in a Demat Account, eliminating the need for paper documents. Dematerialisation of shares makes trading, transferring, and managing investments safer, faster, and more convenient. It also reduces risks like loss, theft, or damage to certificates and simplifies record-keeping. Overall, dematerialisation streamlines the entire investment process for both investors and financial institutions.

How Dematerialisation Works: Step-by-Step Process

Here’s a simple step-by-step guide on how dematerialisation works:

Step Description
Open a Demat Account Open a Demat Account with a registered Depository Participant (DP) like a bank or broker.
Submit Dematerialisation Request Fill out a Dematerialisation Request Form (DRF) and submit it along with your physical share certificates to your DP.
Verification by DP The DP checks the form and sends it to the Registrar & Transfer Agent (RTA) or the Issuer Company.
Processing by Depository The depository checks the details with the issuing company and approves the request.
Shares credited electronically Once verified, the physical shares are cancelled and equivalent electronic shares are credited to your Demat Account.

Dematerialisation vs Rematerialisation: Key Differences

Dematerialisation and rematerialisation are two opposite processes related to how shares are held and managed. Here’s a comparison to help understand the key differences:

Feature Dematerialisation Rematerialisation
Meaning Converting physical shares to electronic form Converting electronic shares to physical form
Process Submit the DRF and the original share certificate Submit Rematerialisation Request Form (RRF)
Account Needed Demat Account Physical certificate holder details
Control Shares stored with a depository Shares held by the investor as paper

Benefits of Dematerialisation

Dematerialisation offers several advantages that make investing and trading more secure, efficient, and convenient. Here are some key benefits:

  • Safe Storage: Eliminates risks of loss, theft, or damage to physical share certificates.
  • Easy Transfer: Enables quick and paperless transfer of securities.
  • Faster Settlements: Speeds up trading and settlement processes.
  • Lower Costs: Reduces costs related to stamp duty, handling, and paperwork.
  • Real-Time Access: Allows investors to track and manage their holdings online.
  • Automatic Updates: Corporate actions, like dividends, bonus shares, and splits, are directly credited.
  • Environment-Friendly: Reduces the need for paper, promoting digital and sustainable practices.
  • Improved Transparency: Enhances accuracy and accountability in transactions.

Overall, dematerialisation simplifies the entire investment process and supports smarter portfolio management.

Risks and Challenges in the Dematerialisation Process

While dematerialisation of shares offers many benefits, there are some risks and challenges that investors should be aware of during the process:

  • Signature Mismatch: Any mismatch between your current and past signatures can delay the dematerialisation process.
  • Name Mismatch: Differences between the name on the share certificate and the Demat Account may require an affidavit or legal documentation.
  • Slow Processing: The entire process can take 15-30 days, depending on verification and approvals.
  • Rejection Risk: Damaged, incomplete, or tampered share certificates may lead to rejection.
  • Technical Dependency: Basic knowledge of the internet and online platforms is required to operate a Demat Account.

Being informed about these challenges helps ensure a smoother transition to digital holdings.

Dematerialisation of Different Securities (Shares, Bonds, MF)

Dematerialisation isn’t limited to equity shares; it covers a wide range of financial instruments. Holding all securities in a single Demat Account ensures convenience, safety, and simplified tracking. Here are the key types:

  • Equity Shares: Represent ownership in a company.
  • Debentures/Bonds: Issued by companies or governments as debt instruments.
  • Mutual Fund Units: Market-linked investments held digitally.
  • Government Securities (G-Secs): Long-term sovereign bonds are now available in demat form.

This unified format promotes better portfolio management and reduces paperwork.

Legal & Regulatory Framework (SEBI, NSDL, CDSL)

The process of dematerialisation in India is regulated by the Securities and Exchange Board of India (SEBI), which ensures transparency, investor protection, and smooth functioning of the securities market. National Securities Depository Limited (NSDL) and Central Depository Services Limited (CSDL) are the two authorised depositories approved by SEBI. They hold your securities in electronic form and operate through registered Depository Participants (DPs), who act as intermediaries between investors and the depositories for all Demat-related services.

Additional Read: What is NSDL and CSDL?

Dematerialisation Request Form (DRF): What to Know

When converting physical shares to electronic form, submitting a properly filled Dematerialisation Request Form (DRF) is essential. Here are the key things to keep in mind:

  • It is used to request the dematerialisation of physical share certificates.
  • The form must be filled out and signed by all joint holders.
  • Write “Surrendered for Dematerialisation” on each physical share certificate.
  • Attach the original share certificates along with the DRF.
  • Use a Transposition Form if the name order differs between the certificate and your Demat Account.

If you hold shares from multiple companies, a separate DRF must be submitted for each company.

 

Timeframe & Charges Associated with Dematerialisation

Before initiating the demat process, it’s important to understand how long it takes and what it might cost. Here are the key details:

  • Time: The process typically takes 15 to 30 days from the date of submission.
  • Charges: Fees vary by Depository Participant (DP). For instance, some may charge ₹150 per certificate, a ₹100 courier fee, plus 18% GST.
  • Courier Requirement: Physical share certificates and forms must be couriered to the DP’s registered address.
  • Review Fees: Always check your DP’s tariff sheet and fund statement to avoid surprises.

With Findoc, you get complete guidance on timelines, costs, and document submission to make the dematerialisation process hassle-free.

FAQs

To dematerialise your shares, open a Demat Account, fill out the Dematerialisation Request Form (DRF), attach original share certificates, and submit them to your Depository Participant (DP).

Yes, most DPs charge a fee per certificate plus courier charges and GST. Findoc charges ₹150 per share certificate + ₹100 courier fee + 18% GST. Always check your DP’s tariff sheet before starting the process.

Yes, you can rematerialise your shares by filling out a Rematerialisation Request Form (RRF) with your DP. Once approved, your electronic shares will be converted back to physical share certificates, though very few investors choose this today.

Open a Demat Account, fill and sign the Dematerialisation Request Form (DRF), attach original share certificates, submit to your DP, and wait for verification and credit to your account.