what is dematerialization?
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Answer:
refer to the attachment above.
Dematerialisation offers flexibility along with security and convenience. Holding share certificates in physical format carried risks like certificate forgeries, loss of important share certificates, and consequent delays in certificate transfers. Dematerialization eliminates these hassles by allowing customers to convert their physical certificates into electronic format.
All you need to know about dematerialization:
Dematerialisation of Securities.
Process of dematerialisation.
Why was dematerialization needed?
Benefits of dematerialization.
What is Dematerialisation of Securities
What is 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. Click here to open free 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.
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.)
Process of dematerialization
Dematerialization starts with opening a Demat account. For Demat account opening,you need to shortlist aDepository Participant (DP) that offers Demat services
To convert the physical shares into 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
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
Once the request is approved, the share certificates in the physical form will be destroyed and a confirmation of dematerialization will be sent to the depository
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
This cycle takes about 15 to 30 days from the submission of dematerialization request
Dematerialization is possible only with a Demat account,therefore it is essential to learn how to open a Demat account to understand dematerialization
Purchasing dematerialised securities:
Step 1: Choose a broker who can facilitate the purchase of the securities
Step 2: Make a payment to the broker who will then arrange for the payment to the clearing corporation on the pay-in day
Step 3: The securities are credited to the broker’s clearing account on the pay-out day
Step 4: The broker will give instructions to its Depository Participant (DP) to debit the clearing account and credit the same to your account
Step 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.
Step 6: You will receive shares into your account. In order to receive the credit, you will need to give ‘Receipt Instructions‘ to the DP if you did not give standing instructions during the opening of your account
Selling dematerialised securities:
Step 1: Choose a broker and sell the securities in a stock exchange linked to the NSDL (National Securities Depository Limited)
Step 2: The Depository Participant (DP) needs to be instructed to debit your account with the number of securities sold and credit the broker’s clearing account
Step 3: You need to send the delivery instruction to your Depository Participant (DP) using the delivery instruction slips
Step 4: Once the request is approved, the share certificates in the physical form will be destroyed and a confirmation of dematerialization will be sent to the depository
Step 5: The broker will give instructions to its DP for delivery to the clearing corporation before the
pay-in day
Step 6: You will receive the payment from the broker for the sale of your securities