ABOUT DEMAT
A Demat account ensures a simple, seamless, paperless, and genuine trading and investing. However, to maintain the genuineness of the process, you need to provide certain documents for opening a demat account.
OPEN A DEMAT ACCOUNT
Difference between Dematerialization & Rematerialisation.
Prior to 1996 in India, shares were bought, stored and sold as share certificates. With the setting up of National Securities Depository Limited in India, share trading became online, and shares were now traded in an electronic format. A demat account allows investors to buy, store and sell shares in their dematerialized format. Just like a bank account is for your money, demat account is for your stocks and other equity-related investments. As per the Securities and Exchange Board of India, opening a Demat account is necessary if you want to trade in shares. The demat account makes investing in shares a safe, streamlined, cost-effective and time-saving experience.
The word "Demat" comes from Dematerialization. As demat account stores shares in their dematerialized format, dematerialization is the conversion of shares in their paper format to electronic format. When the shares are held in electronic format, it drastically reduces fraud and eliminates forgery of certificates, transfer delays and loss of certificates.
The Securities and Exchange Board of India (SEBI) is the regulatory authority for equity investments in India. It has taken several steps to ensure that the dematerialization of shares provides a safe and secure trading experience to investors.
The responsibility of holding all the shares in their dematerialized form is entrusted to the central depositories. A depository is a central entity where the stocks, shares and other financial securities are stored in an electronic or dematerialized format. It facilitates buying and selling of securities online for investors while maintaining comprehensive data of the holdings and ownership records.
In India, there are two Central Depositories – the National Securities Depositories Limited (NSDL), promoted by the National Stock Exchange (NSE) and the Central Depositories Services Limited (CDSL), promoted by the Bombay Stock Exchange (BSE), through which the authorized Depository Participants can hold and manage financial securities.
Depository Participants (DP) are authorized links between the Depositories and investors. It can be a bank or a brokerage firm or any financial institution which is registered with the SEBI as a facilitator of trade in equity investments.
An investor wishing to trade in dematerialized shares online or convert existing physical shares to dematerialized format has to open a demat account with any authorized Depository Participant.
Rematerialization is the conversion of shares in electronic or dematerialized format to physical paper format by issuing a share certificate in lieu of the online holdings.
Shares in their physical form can carry multiple hassles with them, like the threat of loss, fire, forgery, fraud, fake certificates, storage issues, etc. However, many investors choose to rematerialize their shares for various reasons. For example, an investor does not wish to trade further in online demat shares. He may want to close his demat account but has 2-3 company shares that he wants to hold. It is unnecessarily costly for him to keep a demat account and pay annual charges just for a few shares. Such an investor can rematerialize the shares to their certificate form and close the demat account.
Similarly, an investor can hold demat infrastructure bonds. These bonds have a lock-in period of 5 years and cannot be transferred in their locked-in state. So, if the investor wishes to change his participant, he can rematerialize the locked-in bonds and then shift the participant.
SEBI is the regulatory authority for physical shares as well, while the numbering and record keeping is generally done by the Registrar and Transfer Agents (RTA).
STEP BY STEP GUIDE FOR DEMATERIALIZATION OF SHARES AND SECURITIES.
If an investor wishes to convert his physical shares to electronic or demat format, it can be processed through a Depository Participant by opening a Demat Account. Following are the steps to dematerialize physical shares –
STEP 1:Collect and fill a Dematerialization Request Form (DRF) from the DP.
STEP 2:Deface each share certificate by writing “Surrendered for dematerialization” and submit to DP, alongwith the DRF.
STEP 3:The DP will enter the certificate details in the system to mark them for demat and send the information to the depository.
STEP 4:The physical shares are either sent to an RTA or owner company, along with the DRF.
STEP 5:The depository confirms the electronic request from the DP and forwards it to either the RTA or company.
STEP 6:The RTA or company on receipt of both the electronic request and documents, confirm the details and send dematerialization mandate to the depository.
STEP 7:On receipt of the mandate, the depository credits the demat shares to the beneficiary account and informs the DP.
The whole process takes around 15-20 days. Once, the demat account is opened, the investor can buy more shares and securities directly in their dematerialized form by linking a trading account by opening a corresponding trading account.
Buying and Selling Shares Dematerialized Shares – If they wish to start buying the securities, the investors may have to provide a cheque. The Depository Participant, now as the investment broker, will purchase the electronic or dematerialized shares for you and maintain them in your Demat account. If the investor chooses an online platform, the holdings can be viewed online.
If the investor wishes to sell the shares, a delivery note with detailed information regarding the stock to be sold has to be given to the Depository Participant (DP). The DP will sell the respective shares, and the money will be credited to the investor.
STEP BY STEP GUIDE FOR REMATERIALIZATION OF SHARES AND SECURITIES.
STEP 1:Approach the depository participant and submit the duly filled Rematerialization Request Form (RRF).
STEP 2:The DP will forward your RRF to the depository for verification.
STEP 3:The depository will then forward the request to the Company’s Registrar and Transfer Agent.
STEP 4:The RTA will further verify the request and then update the records. Then, a physical certificate of the shares is printed.
STEP 5:The depository will then debit the rematerialized shares from the beneficiary demat account of the shareholder.
STEP 6:The RTA will then dispatch the physical shares to the shareholder.
The whole process takes around 30 days. Transferring the physical share certificates to the shareholder after rematerialization does not incur any Stamp duty. However, a small fee can be charged by the depository for processing the request.