What Is Dematerialization?

One of the terms that we come across more than once while trading in the share market is the Demat account. This service was introduced in India in the year 1996 after the stock exchange in our country adopted an electronic format of trading. In the old days, trading was done by the outcry method and your shares and securities would always be with you in a physical form. Introduction of Demat accounts changed the scenario and the number of Demat accounts that are being opened has kept increasing in the years to follow.

A Demat account or a Dematerialised account is an account that allows an investor to hold his or her share and securities in an electronic format. In simple terms, a Demat account is very similar to a bank account where you store your money for as long as you desire. They also serve as an accurate form of record keeping. Having an active Demat account is a mandatory requirement while trading in the stock market. In India, free Demat account service is provided by depositories such as NSDL and CDSL through intermediaries / Depository Participant / Stock Broker.

The procedure to open a Demat Account is also very simple. First, you need to contact a Depository Partner (DP) that is registered with the SEBI. Then fill a form and submit all the documents for verification. Once the verification is complete and the application is processed, you will be provided with a Demat account number and you can then start trading in the share market using your newly opened Demat account. Now that you know the meaning of a Demat account, there is another question about that comes into everyone’s minds. And that is, what exactly does dematerialization mean?

Dematerialization is the process through which a trader is able to make sure that his physical securities like share certificates and a few other documents are converted in an electronic format. Only after the securities are dematerialized can they be held in a Demat account. With the advances in technology in this computer age, you no longer need to hold on to your securities in a physical form. The introduction of the process of dematerialization has made possible the elimination of a lot of paperwork and allowed for the accounts to be updated automatically and fast.

There are various benefits that come along with dematerializing your shares and putting them in a Demat account.

  • Handling paperwork related to the share market can be tedious and can often lead to problems such as theft, damage, and losses. Dematerialization, on the other hand, allows you to conveniently manage your shares and transactions from anywhere without the possibilities of mishaps like these.
  • Electronic securities are exempted from taxes like stamp duty.
  • Back in the day, it was difficult to keep a track of all the paperwork and if left unchecked could lead to various problems. Elimination of paperwork because of Dematerialization has become a lot more convenient and also reduced the time required to complete the entire transaction process.

The process of converting securities in the physical form to electronic format is also not as complicated. If a holder of any physical form of securities wants to dematerilze it, the procedure requires them to fill a form with their Depository Participant and surrender their documents with them. After which the process starts and after it is completed, the holder will be notified via an email. The entire process may take up to 15 to 30 days for completion. Dematerializing offers investors flexibility along with safety and expediency. But keep in mind that, Dematerialization is only possible if the trader has an active Demat account. Which is why it is essential to open a Demat account. Now that you know the meaning of Dematerialisation and its benefits, open a Demat account at the soonest and start trading right away.